Quick Ratio.
A definition, in plain English — with the books that teach it.
What it means
The quick ratio (also called the acid-test ratio) is a stricter liquidity measure than the current ratio. It excludes inventory and prepaid expenses — assets that may not convert to cash quickly — from the numerator, leaving only cash, marketable securities, and accounts receivable divided by current liabilities. A quick ratio above 1.0 indicates a company can cover its short-term obligations without relying on selling inventory. It is particularly useful for evaluating companies with slow-moving or illiquid inventory.
Example
A retailer has $3.0 million in current assets, including $1.2 million in inventory. Quick assets = $3.0M − $1.2M = $1.8M. With $2.0 million in current liabilities, the quick ratio is $1.8M / $2.0M = 0.90 — below 1.0, meaning the company depends on inventory sales to meet short-term obligations.
