Quick Ratio
The quick ratio, also called the acid-test ratio, compares relatively liquid current assets with current liabilities. Inventory and prepaid assets are normally excluded. Exact definitions can vary, especially in credit agreements.
Formula
A common formulation is:
Quick ratio = (Cash + Marketable securities + Accounts receivable) ÷ Current liabilities
Assume:
- cash: $200 million
- short-term securities: $50 million
- receivables: $300 million
- current liabilities: $440 million
Quick assets:
$550 million
Quick ratio:
1.25x
The selected liquid assets equal 1.25 times current liabilities.
The measure is narrower than the current ratio because it does not rely on inventory conversion.
Why inventory is excluded
Inventory can be a current asset while still being difficult to monetize quickly.
Liquidity depends on:
- demand
- markdowns
- product age
- seasonality
- obsolescence
- selling costs
A company with a large inventory balance can therefore look liquid under the current ratio and much tighter under the quick ratio.
Quick ratio vs. current ratio
Assume:
- cash: $150 million
- receivables: $250 million
- inventory: $500 million
- other current assets: $100 million
- current liabilities: $600 million
Current assets total:
$1.0 billion
Current ratio:
1.67x
Quick assets, using cash plus receivables:
$400 million
Quick ratio:
0.67x
The broad ratio says current assets exceed current liabilities.
The quick ratio shows that most of the cushion depends on inventory and other excluded assets.
A low quick ratio is not automatically a crisis
Some businesses collect cash rapidly and can operate with low quick ratios.
Examples can include companies that:
- sell mostly for cash
- turn inventory quickly
- receive customer prepayments
- have dependable supplier credit
A supermarket and a project contractor should not be judged by the same cutoff.
A high quick ratio is not automatically efficient
A 3.0x quick ratio can reflect:
- excess idle cash
- slow receivable collection
- recent equity financing
- delayed investment
Strong liquidity can reduce risk.
Excess liquidity can also indicate underused capital.
Receivables are the biggest analytical weakness
Receivables are normally counted as quick assets.
That assumes they are collectible.
Potential problems include:
- overdue invoices
- customer disputes
- concentrated counterparties
- unbilled balances
- rising allowances for losses
Suppose a company reports:
- $100 million cash
- $300 million receivables
- $300 million current liabilities
Quick ratio:
1.33x
If $120 million of receivables are seriously delayed, the practical cushion is much smaller.
A covenant can define quick assets more strictly
EverQuote's 2026 credit agreement provides a strong example. Its Adjusted Quick Ratio uses specified unrestricted cash plus qualifying net accounts receivable. The formula excludes receivables more than 90 days past due, intercompany receivables and disputed receivables. It also adjusts the current-liability denominator by excluding the current portion of deferred revenue.[2]
That is not a generic textbook formula.
It is a contractual test designed around assets and liabilities the lender considers relevant.
Same balance sheet, different covenant result
Assume:
- cash: $80 million
- total receivables: $250 million
- current liabilities: $240 million
Simple quick ratio:
1.38x
Now assume:
- $70 million of receivables are over 90 days past due
- $30 million are disputed
Qualifying receivables:
$150 million
Adjusted quick assets:
$230 million
Before any denominator adjustment, the stricter ratio is:
0.96x
The accounting balance sheet did not change.
The definition changed.
Restricted cash deserves caution
Cash can be restricted by:
- debt agreements
- regulators
- escrow arrangements
- subsidiary structures
- collateral requirements
A quick ratio that counts restricted cash as fully available can overstate liquidity.
Read the notes.
Prepaids are normally excluded for good reason
Prepaid insurance, software or rent can reduce future expenses.
They generally cannot be used to pay another obligation.
That makes them poor near-term liquidity assets.
The quick ratio is designed to remove much of that noise.
When current and quick ratios are identical
Healthcare Triangle disclosed in 2026 that it had no inventory and therefore its quick ratio was the same as its current ratio.[3]
That is the clean relationship:
the two measures converge when excluded current assets are immaterial.
Timing still matters
Suppose:
- receivables are due in 60 days
- a debt maturity is due in 10 days
Both can be classified as current.
The quick ratio does not show the mismatch.
Cash-flow timing remains essential.
Quick ratio does not measure profitability
A company can have:
- quick ratio: 2.0x
- recurring operating losses
Liquidity can buy time.
It does not create a profitable business.
Another company can have a 0.8x ratio and strong earnings but a very tight operating cycle.
Liquidity and profitability are different questions.
Quick ratio does not replace cash-flow analysis
A company can improve its quick ratio by issuing shares and keeping the proceeds in cash.
The ratio rises immediately.
Operating cash flow may remain negative.
The balance sheet improved through financing, not operations.
ROIStreet’s GLS-039 — Free Cash Flow helps distinguish those sources.
Example
A company with $200 million cash, $50 million short-term securities and $300 million receivables against $440 million current liabilities has a quick ratio of 1.25x. If a lender excludes stale receivables, its adjusted ratio may be materially lower.
Professional note
A useful quick-ratio review asks:
- Cash: Is it unrestricted and accessible?
- Receivables: How old and concentrated are they?
- Definition: Which securities or other assets are included?
- Liabilities: Are large maturities concentrated near term?
- Covenants: Does a lender use a stricter adjusted formula?
- Cash flow: Is liquidity being generated internally?
The quick ratio is most useful as a more demanding liquidity screen, not as a universal solvency test.
Related terms
- Liquidity
Liquidity describes how readily an investment can be converted to cash without substantial delay, transaction cost or adverse price impact. Liquidity can change with market conditions.
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