Quick Ratio

Do the company’s current assets easily cover its current liabilities?

Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.

What is the Quick Ratio?

The Quick Ratio, also known as the Acid-test or Liquidity ratio, measures the ability of a business to pay its short-term liabilities by having assets that are readily convertible into cash. These assets are, namely, cash, marketable securities, and accounts receivable. These assets are known as “quick” assets since they can quickly be converted into cash.

Quick Ratio liquidity metric

The Quick Ratio Formula

Quick Ratio = [Cash & equivalents + marketable securities + accounts receivable] / Current liabilities

Or, alternatively,

Quick Ratio = [Current Assets – Inventory – Prepaid expenses] / Current Liabilities


For example, let’s assume a company has:

  • Cash: $10 Million
  • Marketable Securities: $20 Million
  • Accounts Receivable: $25 Million
  • Accounts Payable: $10 Million

This company has a liquidity ratio of 5.5, which means that it can pay its current liabilities 5.5 times over using its most liquid assets. A ratio above 1 indicates that a business has enough cash or cash equivalents to cover its short-term financial obligations and sustain its operations.

Quick Ratio Example and Template

The formula in cell C9 is as follows = (C4+C5+C6) / C7

This formula takes cash, plus securities, plus AR, and then divides that total by AP (the only liability in this example).

The result is 5.5.

Download the Free Template

Enter your name and email in the form below and download the free template now!

Quick Ratio Template

Download the free Excel template now to advance your finance knowledge!

What’s Included and Excluded?

Generally speaking, the ratio includes all current assets, except:

  • Prepaid expenses – because they can not be used to pay other liabilities
  • Inventory – because it may take too long to convert inventory to cash to cover pressing liabilities

As you can see, the ratio is clearly designed to assess companies where short-term liquidity is an important factor. Hence, it is commonly referred to as the Acid Test.

The Quick Ratio In Practice

The quick ratio is the barometer of a company’s capability and inability to pay its current obligations.  Investors, suppliers, and lenders are more interested to know if a business has more than enough cash to pay its short-term liabilities rather than when it does not. Having a well-defined liquidity ratio is a signal of competence and sound business performance that can lead to sustainable growth.

To learn more about this ratio and other important metrics, check out CFI’s course on performing financial analysis.

Screenshot from Financial Analysis Course

Quick Ratio vs Current Ratio

The quick ratio is different from the current ratio, as inventory and prepaid expense accounts are not considered in quick ratio because, generally speaking, inventories take longer to convert into cash and prepaid expense funds cannot be used to pay current liabilities. For some companies, however, inventories are considered quick assets; it depends entirely on the nature of the business, but such cases are extremely rare.

Additional Resources

Thank you for reading CFI’s guide to Quick Ratio. To keep learning and advancing your career as a financial analyst, these additional CFI resources will help you on your way:

Free Accounting Courses

Learn accounting fundamentals and how to read financial statements with CFI’s free online accounting classes.
These courses will give the confidence you need to perform world-class financial analyst work. Start now!


Building confidence in your accounting skills is easy with CFI courses! Enroll now for FREE to start advancing your career!

0 search results for ‘