Definition of Quick Ratio

The quick ratio is a measure to assess the liquidity of a business. Based on the current assets except for inventories, the ratio assesses how many readily available liquid assets are there to settle the current liabilities.

Formula for Quick Ratio:

Quick ratio = (Current assets – Inventories) / Current Liabilities

Quick ratio = (Cash + Cash Equivalents + Accounts Receivable + Marketable Securities)

 Current Liabilities

Example of Quick Ratio: 

Assume a company that has the following current assets balance sheet items:

Quick ratio = (Current assets – Inventories) / Current Liabilities

Quick ratio = (1,665,000- 510,000) / 1,250,000 = 0.924