Quick Ratio Calculator - Acid-Test Ratio
Calculate the quick ratio (acid-test ratio) from current assets, inventory, prepaid expenses, and current liabilities, with a health-band interpretation.
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Quick Ratio
1.33
How the Quick Ratio Is Calculated
The quick ratio — also called the acid-test ratio — is a stricter liquidity measure than the current ratio. It excludes inventory and prepaid expenses from current assets, since both can take time to convert into cash, then divides the remainder by current liabilities.
Quick Ratio = (Current Assets − Inventory − Prepaid Expenses) ÷ Current Liabilities
Example
A company with $180,000 in current assets, $50,000 of which is inventory and $10,000 prepaid expenses, against $90,000 in current liabilities has a quick ratio of (180,000 − 50,000 − 10,000) ÷ 90,000 = 1.33 — it can cover its short-term obligations 1.33 times over using only its most liquid assets.
Common Use Cases
- Getting a stricter read on liquidity for businesses with large, slow-moving inventory.
- Assessing short-term solvency risk before extending credit or a loan.
- Comparing quick ratio against the current ratio to see how much inventory affects the picture.
FAQs
- How is this different from the Current Ratio Calculator? The Current Ratio Calculator divides all current assets by current liabilities, treating inventory the same as cash. This quick ratio (acid-test) excludes inventory and prepaid expenses — less liquid assets — giving a stricter measure of a business's immediate ability to pay short-term debts.
- What counts as a good quick ratio? A quick ratio of 1.0 or higher is generally considered healthy, meaning quick assets alone can cover current liabilities without needing to sell inventory. Ratios below 1.0 warrant a closer look at cash flow.
- Why exclude prepaid expenses? Prepaid expenses (like prepaid insurance or rent) represent value already used up in advance — they can't be converted back into cash to pay a bill, so the quick ratio leaves them out of the numerator.