Quick Ratio Calculator (Acid-Test Ratio)
Measure a company short-term liquidity by counting only assets that can quickly become cash. Choose the direct method (cash, marketable securities, and receivables) or the indirect method (current assets minus inventory and prepaid expenses) to get the quick ratio, also called the acid-test ratio, plus the surplus or shortfall against current liabilities.
Formula
Worked example
Direct method: with 45,000 cash, 15,000 securities, and 20,000 receivables, quick assets are 80,000. Against 50,000 current liabilities the quick ratio is 80,000 / 50,000 = 1.6, a 30,000 surplus. The indirect method (120,000 current assets minus 40,000 inventory) lands on the same 1.6.
What the quick ratio measures
The quick ratio, or acid-test ratio, gauges whether a company can pay its current liabilities using only its most liquid assets. Those quick assets are cash and cash equivalents, marketable securities, and accounts receivable. Dividing them by current liabilities shows how many units of liquid assets back each unit of near-term debt. It is stricter than the current ratio because it leaves out inventory and prepaid expenses, items that often cannot be turned into cash quickly enough to settle bills.
Direct and indirect methods
There are two ways to reach the same number. The direct method adds up the liquid assets line by line: cash plus marketable securities plus receivables. The indirect method starts from total current assets and subtracts inventory and prepaid expenses. Use the direct method when you have the individual balances and the indirect method when you only have the current-assets subtotal and the items to remove. This calculator supports both and reports the liquid surplus or shortfall, the amount by which quick assets beat or trail current liabilities.
How to read the result
A quick ratio of 1.0 means liquid assets exactly match current liabilities, so the company could cover every short-term obligation without touching inventory. Below 1.0 signals possible liquidity strain, while a comfortable cushion typically sits between 1.0 and 1.5. A very high ratio can hint at idle cash that might be put to more productive use. Compare against the current ratio too: when the two diverge sharply, a large share of current assets is tied up in inventory.
Why industry context matters
Healthy levels vary enormously by sector. Capital-light technology and software firms often run quick ratios above 2.0 because they hold little inventory and plenty of cash. Inventory-heavy retailers and restaurants frequently operate below 1.0 and still pay their bills, because stock turns over fast and suppliers extend credit. The optional industry comparison here shows your ratio against a rough sector median so a 0.9 is not mistaken for trouble in a business where that is normal, nor a 2.5 mistaken for strength where peers sit even higher.
Interpreting the quick ratio
| Quick ratio | Interpretation |
|---|---|
| Below 1.0 | Low, liquid assets do not cover current liabilities |
| 1.0 to 1.5 | Healthy, obligations covered with a modest cushion |
| Above 1.5 | Strong, ample liquidity, but check for idle cash |
General guidance, healthy levels vary by industry.
Frequently asked questions
What is a good quick ratio?
A quick ratio of 1.0 or higher is generally considered healthy, meaning a company can cover its current liabilities with liquid assets alone. Many analysts look for 1.0 to 1.5, but acceptable levels vary widely by industry, from above 2.0 in technology to below 1.0 in retail and hospitality.
What counts as a quick asset?
Quick assets are the current assets that can be turned into cash quickly: cash and cash equivalents, marketable securities, and accounts receivable. Inventory and prepaid expenses are excluded because they cannot reliably be converted to cash in time to pay short-term bills.
What is the difference between the direct and indirect method?
The direct method adds up the liquid assets (cash plus securities plus receivables). The indirect method takes total current assets and subtracts inventory and prepaid expenses. Both produce the same quick ratio. Pick whichever matches the figures you have on hand.
How is the quick ratio different from the current ratio?
The current ratio divides all current assets by current liabilities, while the quick ratio first removes inventory and prepaid expenses. The quick ratio is therefore always equal to or lower than the current ratio and offers a tougher test of immediate liquidity. This calculator shows both when you use the indirect method.