Quick ratio definition

The quick ratio is an indicator of a business's very short-term financial viability, identifying its ability to meet current obligations. Quick ratio is similar to the current ratio, but much more conservative in that this calculation removes inventory from the asset number.

Quick ratio is calculated from the balance sheet by dividing current assets (net of inventory) by current liabilities. Any quick ratio better than 1-1, assets to liabilities, is typically considered a healthy short-term financial condition.

Quick ratio assets are cash and accounts receivable. Quick ratio liabilities are accounts payable and other short-term obligations, like payments, that are due, typically within the next 30 days.

Expect any banker to focus on the quick ratio when considering any loan proposal.

Search again for other ratios, including the current ratio.