1. What is the Quick Ratio?

The Quick Ratio (also known as the Acid-Test Ratio) 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 stringent test of liquidity than the current ratio.

2. How Does the Calculator Work?

The calculator uses the Quick Ratio formula:

Where:

• \( \text{Current Assets} \) — All assets expected to be converted to cash within one year (USD)
• \( \text{Inventory} \) — Value of raw materials, work-in-progress, and finished goods (USD)
• \( \text{Current Liabilities} \) — 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. Values below 1.0 may suggest potential liquidity problems. It's particularly important for creditors assessing a company's ability to pay bills.

4. Using the Calculator

Tips: Enter all values in USD. Current assets and inventory must be ≥ 0, while 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: The current ratio includes all current assets (including inventory), while the 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 from the calculation?
A: Inventory may not be easily convertible to cash, especially in distressed situations when liquidity is most needed.

Q4: Can the quick ratio be too high?
A: Yes, an excessively high ratio may indicate inefficient use of working capital (too much cash or receivables).

Q5: How often should quick ratio be calculated?
A: It should be monitored regularly (e.g., quarterly) as part of financial statement analysis.