Quick Ratio Calculator

A company's liquidity is essential to reveal important information about business health. This website provides a crucial tool for evaluating the company's liquidity - the quick ratio.

Below we explain the quick ratio, how it is calculated, and what a good value of the quick ratio is.

Calculating the quick ratio is not the only method for measuring a company's liquidity. The most popular ones are the current ratio, free cash flow, and cash flow to debt ratio.

What is the quick ratio?

The quick ratio is a metric of a company's liquidity. The value of the quick ratio reveals if the company can cover its short-term debt using only its liquid assets.

Short-term debt is a subset of a company's liabilities that must be paid off within one year.

Liquid assets represent a group of a company's assets that could be easily turned into cash at their current book value.

The quick ratio definition describes the book value of liquid assets divided by the company's current liabilities. The resulting number can be interpreted as follows:

With a quick ratio greater or equal to one, the company can easily meet its short-term debt using its liquid assets.
With the quick ratio value lower than one, the company could find it impossible to repay its current liabilities using liquid assets.

Note that the low value of the quick ratio does not necessarily mean the company is about to bankrupt. Most companies have other assets that may not be as quickly turned into cash but could be used to repay the debt in an emergency.

What is an acid-test ratio?

The acid-test ratio is an alternative name for the quick ratio. You can use both terms interchangeably.

How to calculate the quick ratio?

In order to calculate the quick ratio, you first need to gather all necessary partial variables. Luckily all the variables you can find on the company's balance sheet.

Liquid assets you can find in the first part of the balance sheet. Focus on Cash and Cash Equivalents, Marketable Securities, and Accounts Receivable positions.
Current liabilities you can see in the liabilities section. Sometimes balance sheet contains the summary of current liabilities. If not, sum up income tax payable, short-term loans, accounts payable, and other positions that indicate short-term obligations.
Substitute all the values into our calculator presented above, or use the quick ratio formula below.

The quick ratio formula

The quick ratio formula (or acid-test formula) is one of the simplest accounting equations.

quick_ratio = (cash_and_cash_equivalent + marketable_securities + accounts_receivable) / current_liabilities

What is a good quick ratio value?

A quick ratio value greater or equal to 1.0 represents a company with healthy finances. Such a company could cover its obligations on time using its liquid assets. So values of the acid ratio above 1.0 can be considered good.

To have a more precise overview of a company's liquidity, you can compare its quick ratio with its competitors or industry averages.

What is the importance of a quick ratio?

The quick ratio provides valuable insights into the company's finances. It can help you evaluate your company's condition or analyze the potential investment.

Lenders often use the quick ratio as a form of assessing credit risk.

More accounting calculators

This acid ratio calculator is one of many accounting tools available on Calcopolis. Visit the category page to find more calculators that allow you to analyze a company from different angles, for example using our DIR Calculator.

Authors

Created by Lucas Krysiak on 2022-10-20 11:46:14 | Last review by Mike Kozminsky on 2022-10-20 15:50:06