Quick Ratio

Quick Ratio aka Acid Test

Dictionary Definition

This reflects the degree to which a company’s current liabilities are covered by its most liquid current assets. Inventory and other assets that cannot be easily converted to cash are removed from the calculation.

Equation

Why it Matters to You

The higher the ratio result, the better a company's liquidity and financial health.  The lower the ratio, the more likely the company will struggle with paying debts.