Quick ratio

In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company to use its "near cash" or quick assets to immediately extinguish or retire its current liabilities. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. Such items are cash, cash equivalents such as marketable securities, and some accounts receivable. This ratio indicates a firm's capacity to maintain operations as usual with current cash or near cash reserves in bad periods. As such, this ratio implies a liquidation approach and does not recognize the revolving nature of current assets and liabilities. The ratio compares a company's cash and short-term investments to the financial liabilities the company is expected to incur within a year's time.

mbox{Current Ratio} = frac {mbox{Current Assets {mbox{Current Liabilities


mbox{Quick (Acid Test) Ratio} = {mbox{Current Assets} - mbox{(Inventory}+ mbox{Staff Salaries} + mbox{Supplies} +mbox{Prepayments)}over mbox{Current Liabilities} - mbox{Bank overdraft

Generally, the acid test ratio should be 1:1 or better, however this varies widely by industry. [cite book
first=John A.
title=How to Read a Financial Report: Wringing Vital Signs Out of the Numbers
pages=pp. 173
publisher=John Wiley and Sons

ee also

*Current Ratio"*Accounting liquidity"


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • quick ratio — See acid test ratio. Practical Law Dictionary. Glossary of UK, US and international legal terms. www.practicallaw.com. 2010 …   Law dictionary

  • quick ratio — A commonly used, but not always accurate, proxy for a firm s liquidity. The quick ratio is calculated by subtracting inventory from current assets and then dividing the result by current liabilities. Sometimes called the acid test ratio. American …   Financial and business terms

  • Quick ratio — Indicator of a company s financial strength (or weakness). Calculated by taking current assets less inventories, divided by current liabilities. This ratio provides information regarding the firm s liquidity and ability to meet its obligations.… …   Financial and business terms

  • Quick Ratio — An indicator of a company s short term liquidity. The quick ratio measures a company s ability to meet its short term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. The quick ratio is… …   Investment dictionary

  • Quick Ratio — Liquiditätsgrade sind insbesondere in der Unternehmensfinanzierung und der Finanzbuchhaltung verwendete betriebswirtschaftliche Kennzahlen, mit denen die Fähigkeit eines Unternehmens, seinen Zahlungsverpflichtungen fristgerecht nachzukommen,… …   Deutsch Wikipedia

  • quick ratio —   Il quick ratio è un indice che mostra il grado di solvibilità di un impresa e, di conseguenza, fornisce indicazioni sull ammontare del credito che può essere rilasciato all impresa stessa. Il quick ratio indica il rapporto tra contanti, crediti …   Glossario di economia e finanza

  • quick ratio — (Economics) ratio between the current debts of a company and its current liquid assets (measures the company s ability to fulfill its financial obligations over the short term) …   English contemporary dictionary

  • quick ratio — See: liquid ratio …   Accounting dictionary

  • quick ratio — An alternative term for the *acid test ratio …   Auditor's dictionary

  • quick ratio — /kwɪk reɪʃiəυ/ noun same as liquidity ratio …   Dictionary of banking and finance

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.