1. What is the Quick Ratio?

The Quick Ratio (also called 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 excludes inventory from current assets, providing a more conservative view of liquidity than the current ratio.

2. How Does the Calculator Work?

The calculator uses the Quick Ratio formula:

Where:

• \( Current\ Assets \) — All assets expected to be converted to cash within one year (USD)
• \( Inventory \) — Value of inventory (USD)
• \( Current\ Liabilities \) — All obligations due within one year (USD)

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

3. Importance of Quick Ratio

Details: A ratio of 1.0 or higher typically indicates good short-term financial health, showing the company can pay its current liabilities without selling inventory. Lower values may signal liquidity problems.

4. Using the Calculator

Tips: Enter all values in USD. Current Assets and Inventory must be ≥ 0, Current Liabilities must be > 0. The result is unitless.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between Quick Ratio and Current Ratio?
A: Current Ratio includes all current assets (including inventory), while Quick Ratio excludes inventory as it's less liquid.

Q2: What is a good Quick Ratio value?
A: Generally, 1.0 or higher is good, but this varies by industry. Some industries normally operate with lower ratios.

Q3: Why exclude inventory?
A: Inventory may not be easily convertible to cash, especially in distressed situations where it might need to be sold at a discount.

Q4: What if my Quick Ratio is too high?
A: While high ratios indicate good liquidity, excessively high ratios might suggest inefficient use of working capital.

Q5: How often should Quick Ratio be calculated?
A: It should be monitored regularly (quarterly or monthly) as part of financial health assessments.