Measure of a company's short-term liquidity.

This is also known as a quick asset ratio or acid-test ratio. It is an indicator of a company's ability to meet its short-term obligations, and therefore gives a sense of general financial strength. Put another way, the quick ratio determines whether a company could meet its current obligations with its readily convertible assets if sales should suddenly stop. The higher the ratio, the better off the company is.

The formula for quick ratio is: (current assets - inventories)/current liabilities. For example, if a company's current assets equal $20,000,000, current inventory equals $10,000,000, and current liabilities equals $5,000,000 then the quick ratio is ($20,000,000-$10,000,000)/$5,000,000=2. This means that for every dollar of current liabilities there are two dollars of readily convertible assets. Creditors generally accept a quick ratio of one or more, however, there is much variation between industries.

Inventory is excluded from current assets because it is often difficult to convert to cash, leaving the liquid assets as cash, marketable securities, and accounts receivable. This makes the quick ratio more accurate than the current ratio.