The quick ratio, or acid test, divides only the assets that can become cash quickly by current liabilities. The numerator is cash and equivalents, marketable securities and trade receivables. Inventory is excluded because it must be sold first, and prepayments are excluded because they will never become cash at all — they have already been spent.
That single exclusion is the whole point of the ratio, and it is where the confusion with the current ratio arises. Two businesses can report the same current ratio while one holds most of its cover in cash and the other in slow-moving stock. The quick ratio separates them. A useful habit is to quote both: the current ratio for structure, the quick ratio for resilience.
A quick ratio of 1.0 is the traditional reference point, meaning immediate obligations could be met without selling a single item of stock. Below that, some part of the balance sheet has to be liquidated or refinanced to pay bills on time. Retailers routinely operate well below 1.0 because their stock turns in days and their sales are for cash, so judge the number against your own cash cycle rather than a universal threshold.
The formula
Cash- Cash and equivalents
Securities- Marketable investments realisable at short notice
Receivables- Trade debts expected to be collected
Excluded- Inventory and prepayments — present but not quick
How to use this calculator
- Enter cash, marketable securities and trade receivables.
- Enter inventory and prepayments so the contrast with the current ratio can be shown.
- Enter total current liabilities.
- The gauge shows the quick ratio; the current ratio and cash-only cover follow below.
Worked examples
The acid test on a stock-heavy balance sheet
Quick assets are $90,000 of cash, $25,000 of securities and $140,000 of receivables, $255,000 in total. Against $310,000 of current liabilities the quick ratio is 0.82, a shortfall of $55,000.
Why the current ratio looked fine
Adding $150,000 of inventory and $15,000 of prepayments lifts the current ratio to 1.35, comfortably above 1.0. The 0.53 difference is entirely assets that cannot pay a bill this week. Cash alone covers only 0.29 of what is due.
How to read your score
Frequently asked questions
What is the difference between the quick ratio and the current ratio?
The quick ratio excludes inventory and prepayments from the numerator. Everything else is identical. The gap between the two figures tells you how much of your short-term cover depends on selling stock.
Why is it called the acid test?
It is borrowed from assaying, where acid was used to check whether metal was really gold. The ratio strips out the assets whose value is least certain in a hurry and asks what is left.
Should receivables really be counted as quick?
Only the collectable ones. If a material share of your ledger is overdue or disputed, deduct it before entering the figure, otherwise the test inherits the same optimism it was designed to remove.
Is a quick ratio below 1.0 always a problem?
No. Grocers, restaurants and other cash-sale businesses with fast-turning stock operate well below 1.0 without difficulty. It matters most where stock is slow, sales are on credit, or liabilities are lumpy.
Do bank overdrafts belong in the denominator?
Yes. Anything repayable on demand or within twelve months is a current liability, including the current portion of term loans.
Acid test reference
| Quick assets | liabilities $200k | liabilities $260k | liabilities $310k | liabilities $400k | liabilities $520k |
|---|---|---|---|---|---|
| quick $120k | 0.60 | 0.46 | 0.39 | 0.30 | 0.23 |
| quick $180k | 0.90 | 0.69 | 0.58 | 0.45 | 0.35 |
| quick $255k | 1.27 | 0.98 | 0.82 | 0.64 | 0.49 |
| quick $340k | 1.70 | 1.31 | 1.10 | 0.85 | 0.65 |
| quick $460k | 2.30 | 1.77 | 1.48 | 1.15 | 0.88 |
Quick assets are cash plus marketable securities plus collectable receivables.
| Balance sheet | Quick assets | Inventory + prepaid | Current ratio | Quick ratio |
|---|---|---|---|---|
| Cash-rich service firm | $380,000 | $20,000 | 1.29 | 1.23 |
| Balanced wholesaler | $255,000 | $165,000 | 1.35 | 0.82 |
| Stock-heavy retailer | $120,000 | $330,000 | 1.45 | 0.39 |
| Contractor with debtors | $300,000 | $90,000 | 1.26 | 0.97 |
| Thin trader | $90,000 | $150,000 | 0.77 | 0.29 |
All five hold $310,000 of current liabilities, so only asset quality differs.