Quick Ratio Calculator Formula
Understand the math behind the quick ratio calculator. Each variable explained with a worked example.
Formulas Used
Quick Ratio
quick_ratio = current_liabilities > 0 ? (current_assets - inventory - prepaid_expenses) / current_liabilities : 0Quick Assets
quick_assets = current_assets - inventory - prepaid_expensesVariables
| Variable | Description | Default |
|---|---|---|
current_assets | Total Current Assets(USD) | 500000 |
inventory | Inventory(USD) | 120000 |
prepaid_expenses | Prepaid Expenses(USD) | 30000 |
current_liabilities | Total Current Liabilities(USD) | 250000 |
How It Works
How to Calculate the Quick Ratio
Formula
Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities
Also called the acid-test ratio, this metric strips out inventory and prepaid expenses because those assets cannot be converted to cash instantly. The result tells you whether the company can cover its bills using only its most liquid assets such as cash, marketable securities, and receivables.
Worked Example
A company has $500,000 in current assets, $120,000 in inventory, $30,000 in prepaid expenses, and $250,000 in current liabilities.
- 01Quick Assets = $500,000 - $120,000 - $30,000 = $350,000
- 02Quick Ratio = $350,000 / $250,000 = 1.40
- 03The company has $1.40 in liquid assets for each $1 of current liabilities.
Frequently Asked Questions
Why exclude inventory from the quick ratio?
Inventory cannot always be sold quickly at full value. In a cash crunch, liquidating inventory may require steep discounts or take weeks, making it an unreliable source of immediate funds.
What quick ratio value is considered safe?
A quick ratio of 1.0 or higher is generally considered adequate. It means the company can cover all short-term debts with liquid assets alone, without needing to sell inventory.
Learn More
Guide
Understanding Financial Ratios
Learn the most important financial ratios for evaluating business health. Covers liquidity, profitability, efficiency, and leverage ratios with formulas and benchmarks.
Ready to run the numbers?
Open Quick Ratio Calculator