1. What is the Quick Ratio?

The Quick Ratio (also known as the Acid-Test Ratio) is a financial metric that measures a company's ability to meet its short-term obligations with its most liquid assets. It provides a more stringent assessment than the current ratio by excluding inventory from current assets.

2. How Does the Calculator Work?

The calculator uses the Quick Ratio formula:

Where:

• \( Cash \) — Cash and cash equivalents
• \( Receivables \) — Accounts receivable
• \( Marketable\ Securities \) — Short-term investments
• \( Current\ Liabilities \) — Short-term debts and obligations

Explanation: The ratio shows how many dollars of liquid assets are available for each dollar of current liabilities.

3. Importance of Quick Ratio

Details: The Quick Ratio is a key indicator of financial health. A ratio of 1:1 or higher typically indicates good short-term financial strength, while a lower ratio may suggest potential liquidity problems.

4. Using the Calculator

Tips: Enter all values in USD. Current liabilities must be greater than zero. The result is unitless and typically interpreted as a ratio (e.g., 1.5 means $1.50 of liquid assets per $1.00 of liabilities).

5. Frequently Asked Questions (FAQ)

Q1: What's a good Quick Ratio value?
A: Generally, 1.0 or higher is considered good, but this varies by industry. Some industries regularly operate with lower ratios.

Q2: How is Quick Ratio different from Current Ratio?
A: Current Ratio includes all current assets (including inventory), while Quick Ratio focuses only on the most liquid assets.

Q3: Why exclude inventory?
A: Inventory may not be quickly convertible to cash, especially in distressed situations when liquidity is most needed.

Q4: Can Quick Ratio be too high?
A: Yes, an excessively high ratio might indicate inefficient use of cash that could be invested for growth.

Q5: How often should Quick Ratio be calculated?
A: Typically calculated quarterly with financial statements, but more frequently if monitoring liquidity concerns.