Quick Ratio

The quick ratio is a stricter solvency test that excludes inventory from current assets.

Using it in practice

For any company whose inventory turns slowly, trust the quick ratio over the current ratio. A quick ratio below 1 is common in some industries and fine; below 0.5 deserves real scrutiny.

Where people go wrong

For firms with slow inventory, quick is the honest number.

Example in numbers

Why investors care

It asks whether you could pay bills with cash and receivables alone.

In the real market

A luxury car maker shows a current ratio of 2.2 and looks solid. But most of its current assets are finished vehicles sitting on lots — expensive inventory that moves slowly. Its quick ratio is 0.7, meaning it could not cover its short-term bills without a fire sale of cars. A supermarket, by contrast, has inventory that sells in days, so its quick ratio understates its true liquidity. The scenario is why the acid test exists: it asks the honest question — what could you pay with today, this minute?

Key takeaway

The quick ratio, or acid test, asks the honest question: could you pay your bills with cash and receivables alone, this minute? By excluding inventory, it strips out the asset that may be slow or impossible to sell quickly. For slow-inventory and cyclical businesses, the quick ratio is the true health check; a sub-0.5 reading deserves real scrutiny. When liquidity matters — and it always matters in a downturn — the quick ratio tells you what the current ratio hides.

Definitions reviewed by the Investing Glossary editorial team.