Comprehensive Guide
Learn more in our Business & Tax Guide.
How it works
The quick ratio (also called the acid-test ratio) is the strictest test of short-term solvency. It asks: if every current liability came due tomorrow and you could not sell a single item of inventory, could you pay them? The formula adds cash, short-term investments, and accounts receivable — then divides by current liabilities. It deliberately excludes inventory (which may take weeks or months to sell) and prepaids (which cannot be converted to cash). A quick ratio of 1.0 means you have exactly enough liquid assets to cover obligations. Below 1.0 means a gap exists — you would need to sell inventory, borrow, or raise cash to survive. Above 1.0 provides a cushion. The calculator computes the shortfall if your ratio is below 1.0 and provides a plain-English verdict. Service businesses with minimal inventory often run quick ratios above 1.0; retail businesses with heavy inventory investment may run below 1.0 without being in distress, because their inventory is genuinely liquid.Formula
Quick ratio = (Cash + Short-term investments + Receivables) ÷ Current liabilities | Quick assets = Cash + ST investments + Receivables | Shortfall = Current liabilities − Quick assets
Tips
- A quick ratio of 1.0 or higher means you can cover short-term bills without selling inventory.
- Below 0.5 is a serious liquidity warning — you need cash fast or a credit line.
- Service businesses should always target above 1.0 since they have little inventory to fall back on.
- Pair with the current ratio: if current ratio is strong but quick ratio is weak, inventory is the problem.
Frequently asked questions
What is a good quick ratio?
A quick ratio of 1.0 or higher means quick assets fully cover current liabilities — the standard healthy benchmark. Above 1.5 is very comfortable. Below 0.8 starts to signal stress, and below 0.5 is a serious concern that requires immediate action.
What is the difference between quick ratio and current ratio?
The current ratio includes all current assets (inventory, prepaids, receivables, cash). The quick ratio strips out inventory and prepaids, testing only the most immediately liquid assets. The gap between the two reveals how much of your liquidity depends on selling inventory.
Is a quick ratio below 1.0 always bad?
Not necessarily for inventory-heavy retail businesses that turn stock quickly. A grocery store with a quick ratio of 0.6 may be perfectly healthy because its inventory sells in days. But for a service business with no inventory, a quick ratio below 1.0 means you cannot pay bills without borrowing.
How do I improve my quick ratio?
The fastest path is collecting receivables more aggressively and converting short-term investments to cash. Selling inventory helps the current ratio but not the quick ratio. The structural fix is building a larger cash reserve or arranging a revolving credit line as a safety net.