Quick Ratio
Also called: acid test ratio, acid-test
What is Quick Ratio?
The quick ratio, or acid test, divides current assets excluding inventory by current liabilities. It asks whether short-term obligations could be met without having to sell stock first.
Why Quick Ratio matters
For businesses holding slow or seasonal stock, the quick ratio is the more honest liquidity measure. Inventory is only as liquid as its demand, which is exactly what is uncertain in a squeeze.
Quick Ratio formula
Quick ratio = (Current assets − Inventory) ÷ Current liabilities
Some versions also exclude prepaid expenses.
How Quick Ratio works in practice
Track it alongside the current ratio. A wide and widening gap between the two means an increasing share of the balance sheet is stock that has not yet found a buyer.
Frequently asked questions
Because converting it to cash quickly usually means discounting it, if it can be sold at all.