Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The quick ratio exists because the current ratio can be flattered by inventory that may never sell at full value in a pinch. Strip inventory out and what's left, cash, receivables, near-cash, is what could actually cover a liability due this month without waiting on a sale. A business can look comfortably liquid on the current ratio and genuinely tight on this one.
Before you rely on it
What to check
Confirm which assets your quick-asset figure actually excludes. Some versions also strip out prepaid expenses, which changes the result further.
The common error
Where people go wrong with quick ratio calculator
Treating current ratio and quick ratio as roughly interchangeable. For an inventory-heavy business the two can diverge sharply, and the quick ratio is the one that matters when a bill is due before anything sells.
Sensitivity evidence
How available amount changes the calculated ratio
| Available amount | Calculated ratio | Dollar cushion |
|---|---|---|
| $120,000 | 1.20× | $20,000 |
| $135,000 | 1.35× | $35,000 |
| $150,000worked example | 1.50× | $50,000 |
| $165,000 | 1.65× | $65,000 |
| $180,000 | 1.80× | $80,000 |
Every input, tested
Which input moves the calculated ratio most
| Input | Tested from | To | Calculated ratio at each end | Swing |
|---|---|---|---|---|
| Required amount | $90,000 | $110,000 | 1.67× to 1.36× | 0.30× (20%) |
| Available amount | $135,000 | $165,000 | 1.35× to 1.65× | 0.30× (20%) |
Two variables at once
Calculated ratio by available amount and required amount
| Available amount \ Required amount | $80,000 | $100,000 | $120,000 |
|---|---|---|---|
| $120,000 | 1.50× | 1.20× | 1.00× |
| $135,000 | 1.69× | 1.35× | 1.13× |
| $150,000 | 1.88× | 1.50× | 1.25× |
| $165,000 | 2.06× | 1.65× | 1.38× |
| $180,000 | 2.25× | 1.80× | 1.50× |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Available amount | $150,000 |
| Required amount | $100,000 |
| Calculated ratio | 1.50× |
| Dollar cushion | $50,000 |
Where the inputs come from
Available amount is quick assets: cash, marketable securities and accounts receivable you expect to collect, and it deliberately excludes inventory and prepaid expenses. Required amount is current liabilities. Both come from the balance sheet on the same date. Exclude doubtful receivables, since a customer who will not pay is not a liquid asset. The tool uses the same math as the cash ratio, so choose the inputs to match the question.
When the result stops applying
Businesses with fast inventory turnover, such as grocers, may run below 1 comfortably. Receivables vary in quality, so the age of the accounts matters as much as the amount. It says nothing about the timing of when each bill is due.
What to compare it with
Compare with the stricter cash ratio and the broader current ratio, and use the working capital page for the dollar figure. The accounts receivable aging and days sales outstanding calculators show how quickly the receivables convert to cash. The cash conversion cycle page ties the pieces together.
People also ask
Frequently asked questions
How is the quick ratio different from the current ratio?
The quick ratio leaves out inventory and prepaid expenses, so it counts only assets that can be turned into cash quickly, making it a stricter test.
What is a good quick ratio?
One or higher is usually considered healthy, since it means liquid assets cover current liabilities. The right level varies by industry.
Why exclude inventory from quick assets?
Inventory may take time to sell and may sell for less than its recorded value, so it is a less reliable source of cash to pay near-term bills.