The quick ratio (acid-test ratio) is a stricter current ratio: (current assets − inventory) ÷ current liabilities. It asks whether a company could pay its short-term bills using only its most liquid assets, without relying on selling any inventory.
Quick ratio = (current assets − inventory) ÷ current liabilities. (Equivalently, add up only the quick assets: cash + marketable securities + receivables.) Example (illustrative): a company has $150 million in current assets, of which $60 million is inventory, against $100 million in current liabilities. Its current ratio is 150 ÷ 100 = 1.5 — comfortable-looking. But its quick ratio is (150 − 60) ÷ 100 = 0.9. Strip out inventory and it has slightly less than $1 of truly liquid assets per $1 of near-term bills. The figures are illustrative inputs, not a reading for any real stock.
The distance between a company’s current ratio and its quick ratio is itself the signal. When they are close, little liquidity is tied up in inventory — typical of a services or software business. When the quick ratio is far below the current ratio, a large slice of those “current assets” is stock that must actually be sold before it becomes cash — common for retailers and manufacturers. A quick ratio around 1.0 or above is often read as healthy, but the sensible benchmark is the company’s own history and direct peers, not a universal number.
Even the acid test is a single balance-sheet snapshot. It assumes receivables will actually be collected (some won’t), it ignores the timing of when bills fall due versus when cash arrives, and it says nothing about profitability or longer-term debt. A business with a low quick ratio but a fast, reliable cash cycle can be perfectly safe, while a high quick ratio built on slow-paying receivables can flatter a shaky company. Use it alongside the current ratio and cash-flow information.
Both divide short-term assets by current liabilities, but the quick ratio excludes inventory. It tests whether a company could pay its bills using only its most liquid assets (cash, marketable securities, receivables), making it a stricter version of the current ratio.
A quick ratio around 1.0 or above is often read as healthy — roughly a dollar of liquid assets per dollar of near-term bills — but the right level is industry-dependent. Compare a company to its own history and direct peers rather than a universal number.
The name borrows from the old acid test used to check whether metal was real gold — a quick, harsh pass/fail. The ratio applies the same idea to liquidity: can the company pass a strict cash test without relying on selling inventory?
Browse all S&P 500 tickers to see this metric applied to individual companies.
Educational research only — not investment advice.