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Quick Ratio (Acid Test)

Current assets minus inventory, divided by current liabilities — stricter liquidity measure.

The quick ratio (acid-test ratio) is a conservative liquidity metric that excludes inventory from current assets, answering: 'Can the company pay bills if inventory can't be quickly sold?' Quick Ratio = (Cash + Marketables + Receivables) / Current Liabilities. A ratio >1.0 means the company can cover short-term obligations without selling inventory. Why exclude inventory? Inventory can be slow to liquidate or may sell at a discount in distress. Benchmarks: >1.5 is strong, 1.0-1.5 is adequate, <1.0 signals potential liquidity stress. Sector variation: Asset-light businesses (tech, services) often have >2.0; manufacturers may operate safely at 0.8-1.2 if inventory turns quickly. Compare to current ratio — if current is 2.5 but quick is 0.9, the company is heavily reliant on inventory (potential red flag).

Formula
Quick Ratio=Current Assets−InventoryCurrent Liabilities\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}