Quick Ratio Template
Quick Ratio Template
This quick ratio template helps you calculate the quick ratio given the amount of cash, marketable securities, accounts receivable, and accounts payable.
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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.
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
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, and hence it is commonly referred to as the Acid Test.
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