What is “Quick Ratio” meaning?

The quick ratio, also known as the acid-test ratio, is a key indicator of a company’s financial health. It focuses on assets like cash, marketable securities, and receivables to determine if the company can pay its current liabilities without relying on inventory. It is considered a more conservative measure than the current ratio.

Example

“The company’s quick ratio improved after selling off excess inventory and increasing its cash reserves.”

How is “Quick Ratio” used in business?

In business, the quick ratio helps investors and financial analysts assess a company’s immediate liquidity position. It’s particularly useful in industries where inventory may not be easily liquidated. A quick ratio of 1 or higher typically indicates a strong short-term financial position.

Pro Tip

A quick ratio under 1 may indicate liquidity concerns, but it’s important to consider the company’s industry and business model for context.