Quick Ratio (Acid-Test) Calculator
Calculate the quick ratio (acid-test ratio) — a stricter measure of short-term liquidity that excludes inventory and prepaid expenses from current assets.
Calculate the quick ratio (acid-test ratio) — a stricter measure of short-term liquidity that excludes inventory and prepaid expenses from current assets.
Can you pay near-term bills without selling inventory? This ratio answers exactly that.
Banks check the quick ratio — compute yours before applying.
A ratio sliding below 1 signals trouble while there's still time to act.
Check a customer's liquidity before extending them significant credit.
Inventory may take months to sell and may only sell at a discount under pressure. Removing it asks whether creditors could be paid without a fire sale.
Restaurants and supermarkets run low quick ratios by design, because they take cash immediately and pay suppliers weeks later. A low number is not automatically a warning.
Quick Ratio = (Current Assets − Inventory − Prepaid Expenses) ÷ Current Liabilities. It is also called the "acid-test ratio" because, like a chemical acid test, it strips away anything that cannot be quickly and reliably converted to cash, leaving only the most liquid assets: cash, marketable securities, and receivables.
Inventory can take weeks or months to sell, and in a cash crunch it may only fetch a fraction of its book value through a fire sale. Excluding it gives a more conservative, realistic view of whether a company could cover its short-term liabilities right now without relying on selling stock.
A quick ratio of 1.0 or higher generally means a company can cover its current liabilities without selling inventory or raising new financing. Below 1.0 isn't automatically alarming — it depends on the business model and how quickly receivables turn into cash — but it does mean any short-term cash crunch would need attention. Above 2.0 may suggest the company is sitting on excess idle assets that could be put to better use.
The current ratio = Current Assets ÷ Current Liabilities, including inventory and prepaid expenses. The quick ratio is always equal to or lower than the current ratio because it removes the least liquid current assets. A large gap between the two ratios usually means a company is holding a lot of inventory relative to its other current assets — common in retail and manufacturing.
Retail and manufacturing businesses naturally carry large inventories as a core part of operations, which inflates the current ratio but is excluded from the quick ratio. A retailer with a quick ratio of 0.5 isn't necessarily in trouble — compare it against other retailers, not against a software company with almost no inventory at all.
Collect receivables faster (tighter credit terms, early-payment discounts), delay non-critical payables within agreed terms, convert excess cash-equivalent investments into more liquid forms, or pay down short-term debt with longer-term financing to shrink current liabilities relative to quick assets.