Quick ratio calculator

Current assets

Inventory

Prepaid expenses (optional)

Current liabilities

Quick ratio (acid test)

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Quick ratio = (Current assets − Inventory − Prepaid expenses) / Current liabilities. Inventory and prepaid expenses are excluded because they cannot be turned into cash quickly, unlike cash, receivables and marketable securities. A ratio of 1.0 means quick assets exactly cover current liabilities; below 1 is not automatically trouble but is worth reading in context.

What the quick ratio measures

Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current liabilities. It answers a narrower question than the current ratio: not "can this be paid using everything short-term", but "can this be paid using what could actually be turned into cash quickly" - excluding inventory, which can sit unsold for months, and prepaid expenses, which cannot be converted to cash at all.

Reading the number

A quick ratio of 1.0 means quick assets exactly cover current liabilities. Above 1 suggests a comfortable short-term cushion. Below 1 does not automatically mean trouble - some healthy, fast-turnover businesses run below 1 by design - but it does mean short-term obligations exceed what can be quickly liquidated, which is worth understanding in context rather than reading as a single verdict.

Why inventory is excluded and the current ratio is not enough on its own

The current ratio treats inventory as equal to cash, but inventory has to be sold first, often on credit, before it becomes cash - and if it is slow-moving or written down, it may never convert at the value on the books. A business can look solvent on the current ratio while the quick ratio shows the cushion is much thinner than it appears.

What it needs

Three numbers from a balance sheet: current assets, inventory and current liabilities (prepaid expenses is optional and defaults to zero if left blank). Current liabilities of zero is refused rather than shown as an infinite ratio.