1. What is the Quick Ratio?

The Quick Ratio (also called Acid-Test Ratio) measures a company's ability to meet its short-term obligations with its most liquid assets. It's a more conservative measure than the current ratio as it excludes inventory from current assets.

2. How Does the Calculator Work?

The calculator uses the Quick Ratio formula:

Where:

• \( Liquid\ Assets \) — Cash, marketable securities, and accounts receivable (USD)
• \( Short\ Term\ Liabilities \) — Current liabilities 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 or higher indicates the company can fully cover its current liabilities with liquid assets. Below 1 suggests potential liquidity issues.

4. Using the Calculator

Tips: Enter liquid assets and short-term liabilities in USD. Both values must be positive, and liabilities cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What's considered a good quick ratio?
A: Generally, 1.0 or higher is good, but this varies by industry. Some industries operate safely with lower ratios.

Q2: How does quick ratio differ from current ratio?
A: Current ratio includes all current assets (including inventory), while quick ratio only includes the most liquid assets.

Q3: What are considered liquid assets?
A: Cash, cash equivalents, marketable securities, and accounts receivable. Inventory and prepaid expenses are excluded.

Q4: Can quick ratio be too high?
A: Yes, an excessively high ratio might indicate inefficient use of cash that could be invested in growth opportunities.

Q5: How often should quick ratio be calculated?
A: Typically calculated quarterly with financial statements, but can be done more frequently for internal monitoring.