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Accounting encyclopedia · Financial statements

Quick ratio

The quick ratio, also called the acid-test ratio, divides quick assets by current liabilities. Quick assets are the most liquid items, mainly cash and accounts receivable, and exclude inventory. It is a stricter test of short-term coverage than the current ratio, because it asks whether bills could be met without selling stock.

Sora Accounting & Tax · General information · Editorial policy
Updated · 2 min read

Quick ratio leaves inventory out of the count

An illustration comparing the assets counted in the quick ratio with inventory, which is left out, not your result.

Visual labels: Cash and receivables; Inventory excluded; Current liabilities.

Formula and variations

Quick ratio = quick assets ÷ current liabilities. BDC’s glossary defines quick assets as cash plus accounts receivable and calls the result the most stringent calculation of short-term liquidity. BDC’s financial ratios article also includes short-term investments in quick assets, so definitions are not identical even within one source.

That difference matters when you compare numbers. A lender’s covenant, accounting software and a textbook may each treat investments, prepaid expenses or the current portion of long-term debt differently. Always confirm which version a figure uses before comparing it with a target.

An illustrative example

Take a business with $10,000 in the bank, $30,000 owed by customers, $50,000 of inventory and $60,000 of current liabilities. Quick assets are $10,000 plus $30,000, or $40,000. The quick ratio is $40,000 ÷ $60,000, about 0.67. The figures are illustrative only.

With inventory included, the current ratio for the same business is 1.5. The gap between 1.5 and 0.67 shows how much of its short-term position depends on selling stock. BDC’s glossary says a business should ideally have a ratio of at least 1:1, and its article treats 1.0 or greater as generally acceptable, subject to industry norms.

Reading a low quick ratio carefully

A ratio below 1.0 is a prompt to ask questions, not a verdict. A retailer with fast-moving stock may operate safely below 1.0, while a service business with slow-paying customers may be at greater risk even at 1.0. The quality of receivables matters as much as their size.

BDC suggests that businesses with a low ratio can create more quick assets by collecting receivables sooner, offering terms for early payment, or having owners invest more cash. Paying down liabilities or delaying purchases also raises the ratio. Each choice has trade-offs for customers, suppliers and your own cash.

What to discuss with your accountant

Ask which assets your accountant counts as quick, how overdue or disputed receivables are treated, and what ratio a lender in your industry typically expects. If you have a banking covenant, bring the agreement so the definitions can be read together.

Bring an aged receivables report, bank reconciliations and your current liabilities listing. The quick ratio describes a single balance-sheet date, so review it alongside your current ratio and a forward-looking cash-flow forecast.

Sources & editorial notes

Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.

Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.