QuestionsAnswered.net

What's Your Question?

## Making a Risk Management Plan for Your Business

## Developing Your Executive Summary

## Who Are the Stakeholders and What Potential Problems Need Identifying?

## Evaluate the Potential Risks Identified

## Assign Ownership and Create Responses

## Have a System for Monitoring

MORE FROM QUESTIONSANSWERED.NET

- Corporate Finance
- Mutual Funds
- Investing Essentials
- Fundamental Analysis
- Portfolio Management
- Trading Essentials
- Technical Analysis
- Risk Management
- Company News
- Markets News
- Cryptocurrency News
- Personal Finance News
- Economic News
- Government News
- Wealth Management
- Budgeting/Saving
- Credit Cards
- Home Ownership
- Retirement Planning
- Best Online Brokers
- Best Savings Accounts
- Best Home Warranties
- Best Credit Cards
- Best Personal Loans
- Best Student Loans
- Best Life Insurance
- Best Auto Insurance
- Practice Management
- Financial Advisor Careers
- Investopedia 100
- Portfolio Construction
- Financial Planning
- Investing for Beginners
- Become a Day Trader
- Trading for Beginners
- All Courses
- Trading Courses
- Investing Courses
- Financial Professional Courses

## What Is the Quick Ratio?

## Quick Ratio vs. Current Ratio

## The Bottom Line

## Quick Ratio Formula With Examples, Pros and Cons

Investopedia / Madelyn Goodnight

## Key Takeaways

- The quick ratio measures a company's capacity to pay its current liabilities without needing to sell its inventory or obtain additional financing.
- The quick ratio is considered a more conservative measure than the current ratio, which includes all current assets as coverage for current liabilities.
- The quick ratio is calculated by dividing a company's most liquid assets like cash, cash equivalents, marketable securities, and accounts receivables by total current liabilities.
- Specific current assets such as prepaids and inventory are excluded as those may not be as easily convertible to cash or may require substantial discounts to liquidate.
- The higher the ratio result, the better a company's liquidity and financial health; the lower the ratio, the more likely the company will struggle with paying debts.

## What Is The Quick Ratio?

Understanding the quick ratio.

## Quick Ratio Formula

## Components of the Quick Ratio

## Cash Equivalents

## Marketable Securities

## Net Accounts Receivable

## Current Liabilities

## Advantages and Limitations of the Quick Ratio

## Quick Ratio

Conservative approach on estimating a company's liquidity

Relatively straightforward to calculate

All components are reported on a company's balance sheet

Can be used to compare companies across time periods or sectors

Does not consider future cash flow capabilities of the company

Does not consider long-term liabilities (some of which may be due as early as 12 months from now)

May overstate the true collectability of accounts receivable

May overstate the true liquidity of marketable securities during economic downturns

## Example of the Quick Ratio

## Why Is It Called the Quick Ratio?

## Why Is the Quick Ratio Important?

## Is a Higher Quick Ratio Better?

## How Do the Quick and Current Ratios Differ?

## What Happens If the Quick Ratio Indicates a Firm Is Not Liquid?

AICPA. " Accounting For and Auditing of Digital Assets ."

Procter & Gamble. " 2021 Annual Report ," Page 60.

Johnson & Johnson. " 2021 Annual Report ," Page 55.

- Guide to Financial Ratios 1 of 31
- What Is the Best Measure of a Company's Financial Health? 2 of 31
- What Financial Ratios Are Used to Measure Risk? 3 of 31
- Profitability Ratios: What They Are, Common Types, and How Businesses Use Them 4 of 31
- Understanding Liquidity Ratios: Types and Their Importance 5 of 31
- What Is a Solvency Ratio, and How Is It Calculated? 6 of 31
- Solvency Ratios vs. Liquidity Ratios: What's the Difference? 7 of 31
- Key Ratio 8 of 31
- Multiples Approach 9 of 31
- Return on Assets (ROA): Formula and 'Good' ROA Defined 10 of 31
- How Return on Equity Can Help Uncover Profitable Stocks 11 of 31
- Return on Investment (ROI): How to Calculate It and What It Means 12 of 31
- Return on Invested Capital: What Is It, Formula and Calculation, and Example 13 of 31
- EBITDA Margin: What It Is, Formula, How to Use It 14 of 31
- What is Net Profit Margin? Formula for Calculation and Examples 15 of 31
- Operating Margin: What It Is and the Formula for Calculating It, With Examples 16 of 31
- Current Ratio Explained With Formula and Examples 17 of 31
- Quick Ratio Formula With Examples, Pros and Cons 18 of 31
- Cash Ratio: Definition, Formula, and Example 19 of 31
- Operating Cash Flow (OCF): Definition, Types, and Formula 20 of 31
- Receivables Turnover Ratio Defined: Formula, Importance, Examples, Limitations 21 of 31
- Inventory Turnover Ratio: What It Is, How It Works, and Formula 22 of 31
- Working Capital Turnover Ratio: Meaning, Formula, and Example 23 of 31
- Debt-to-Equity (D/E) Ratio Formula and How to Interpret It 24 of 31
- Total-Debt-to-Total-Assets Ratio: Meaning, Formula, and What's Good 25 of 31
- Interest Coverage Ratio: Formula, How It Works, and Example 26 of 31
- Shareholder Equity Ratio: Definition and Formula for Calculation 27 of 31
- Can Investors Trust the P/E Ratio? 28 of 31
- Using the Price-to-Book (P/B) Ratio to Evaluate Companies 29 of 31
- Price-to-Sales (P/S) Ratio: What It Is, Formula To Calculate It 30 of 31
- Price-to-Cash Flow (P/CF) Ratio? Definition, Formula, and Example 31 of 31

## Quick Ratio: How to Calculate & Examples

## What Is Quick Ratio?

- The quick ratio measures a company’s ability to quickly convert liquid assets into cash to pay for its short-term financial obligations.
- A positive quick ratio can indicate the company’s ability to survive emergencies or other events that create temporary cash flow problems.
- Lenders and investors use the quick ratio to help decide whether a business is a good bet for a loan or investment.
- The quick ratio is considered a conservative measure of liquidity because it excludes the value of inventory. Thus it’s best used in conjunction with other metrics, such as the current ratio and operating cash ratio.

## Quick Ratio Explained

## Quick Ratio Formula

Quick ratio = quick assets / current liabilities

Quick assets are a subset of the company’s current assets. You can calculate their value this way:

Quick assets = cash & cash equivalents + marketable securities + accounts receivable

Quick assets = current assets – inventory – prepaid expenses

You can find the value of current liabilities on the company’s balance sheet.

## What Is Included in the Quick Ratio?

## Why isn’t inventory included?

## Quick Ratio vs Current Ratio

## Quick Ratio Analysis

Other important liquidity measures include the current ratio and the cash ratio.

## How to Calculate Quick Ratio

- From the balance sheet, find cash and cash equivalents, marketable securities and accounts receivable, which you’ll sometimes see listed as “trade debtors” or “trade receivables.” These are the quick assets.
- On the balance sheet, find “current liabilities.”
- Add up the quick assets. Then divide them by current liabilities.

The result is the quick ratio.

## Quick Ratio Examples

Company A has a balance sheet that looks like this:

Quick ratio = quick assets / current liabilities = 165,000/137,500 = 1.2

In contrast, Company B has a balance sheet that looks like this:

So which company is in a better position to receive funding to cover its short-term obligations?

## Why Is Quick Ratio Important?

## What Is a Good Quick Ratio?

## What Does a Quick Ratio Under 1 Mean?

In addition, the business could have to pay high interest rates if it needs to borrow money.

## How Do Client Payments Affect a Business’s Quick Ratio?

## Advantages and Disadvantages of the Quick Ratio

There are a number of advantages to using the quick ratio:

- During hard times, a business’s ability to leverage its cash and other short-term assets can be key to survival. Too often, businesses facing cash flow problems have to sell inventory at a heavy discount or borrow at very high interest rates to meet immediate obligations.
- The quick ratio is a useful indicator of a company’s ability to manage cash flow problems without resorting to fire sales or borrowing money.

However, the quick ratio has several significant disadvantages.

- The quick ratio ignores supplier and customer credit terms. This can give a misleading impression of asset liquidity.
- The quick ratio doesn’t tell you anything about operating cash flows, which companies generally use to pay their bills.
- For companies that can sell inventory fast, the quick ratio can be a misleading representation of liquidity. For these companies, the current ratio — which includes inventory — may be a better measure of liquidity.

## Working Capital May Be a Lifeline

The borrower collects payments from customers directly and uses that cash to repay the loan.

## Limitations of Quick Ratio

Plan & Forecast More Accurately

## How Your Company Can Use the Quick Ratio

## Free Quick Ratio Template

To calculate your company’s quick ratio, download this free template.

Cash Flow Analysis: Basics, Benefits and How to Do It

## Learn How NetSuite Can Streamline Your Business

How is your business adapting to change?

## Before you go...

Discover the products that 33,000+ customers depend on to fuel their growth.

## Quick Ratio

Do the company’s current assets easily cover its current liabilities?

## What is the Quick Ratio?

## The Quick Ratio Formula

Quick Ratio = [Current Assets – Inventory – Prepaid expenses] / Current Liabilities

For example, let’s assume a company has:

- Cash: $10 Million
- Marketable Securities: $20 Million
- Accounts Receivable: $25 Million
- Accounts Payable: $10 Million

The formula in cell C9 is as follows = (C4+C5+C6) / C7

## Download the Free Template

Enter your name and email in the form below and download the free template now!

## Quick Ratio Template

Download the free Excel template now to advance your finance knowledge!

## What’s Included and Excluded?

Generally speaking, the ratio includes all current assets, except:

- Prepaid expenses – because they can not be used to pay other liabilities
- Inventory – because it may take too long to convert inventory to cash to cover pressing liabilities

## The Quick Ratio In Practice

## Quick Ratio vs Current Ratio

## Additional Resources

- Profitability Ratios
- Forward PE Ratio
- Analysis of Financial Statements
- Financial Modeling Best Practices Guide
- See all accounting resources
- See all capital markets resources

## Free Accounting Courses

## This device is too small

## Ascent-logo

A beginner's guide to quick ratio.

by Mary Girsch-Bock | Updated Aug. 5, 2022 - First published on May 18, 2022

## Overview: What is the quick ratio?

## What is a good quick ratio?

## What’s the difference between the quick ratio vs current ratio?

- Quick ratio: The quick ratio formula uses current liquid assets, which are assets that can be turned into cash quickly, divided by current liabilities. The quick ratio does not include inventory , prepaid expenses , or supplies in its calculation.
- Current ratio: The current ratio formula is current assets divided by current liabilities, but it includes all current assets, not just liquid assets.

## The quick ratio formula

You will use a balance sheet in order to calculate the quick ratio.

(Cash + Marketable Securities + Accounts Receivable) ÷ Current Liabilities = Quick Ratio

## How to calculate the quick ratio

## Step 1: Run a balance sheet

## Step 2: Calculate your current assets

The standard balance sheet provides asset details. Image source: Author

## Step 3: Calculate your current liabilities

Only current liabilities should be included in the quick ratio calculation. Image source: Author

## Step 4: Complete the quick ratio calculation

Current assets: $141,382.77 (Step 2)

Current liabilities: $9,440.53 (Step 3)

You can now calculate the quick ratio:

$141,382.77 ÷ $9,440.53 = 14.98

## How can your company use your quick ratio?

## Quick ratio can help your company

## Alert: highest cash back card we've seen now has 0% intro APR until 2024

## Our Research Expert

Copyright © 2018 - 2023 The Ascent. All rights reserved.

Welcome to Wall Street Prep! Use code at checkout for 15% off.

- All Self-Study Programs
- Premium Package
- Basic Package
- Private Equity Masterclass
- Project Finance Modeling
- FP&A Modeling Certification (FPAMC©)
- Bank & FIG Modeling
- Oil & Gas Modeling
- Biotech Sum of the Parts Valuation
- The Impact of Tax Reform on Financial Modeling
- VC Term Sheets & Cap Tables
- Corporate Restructuring
- The 13-Week Cash Flow Model
- Real Estate Financial Modeling
- REIT Modeling
- Accounting Crash Course
- Advanced Accounting
- Crash Course in Bonds
- Analyzing Financial Reports
- Interpreting Non-GAAP Reports
- Fixed Income Markets Certification (FIMC©)
- Equities Markets Certification (EMC©)
- ESG Investing
- Excel Crash Course
- PowerPoint Crash Course
- Ultimate Excel VBA Course
- Investment Banking "Soft Skills"
- The Investment Banking Interview Guide ("The Red Book")
- Financial Modeling

## Quick Ratio

Guide to Understanding the Quick Ratio Concept

## What is Quick Ratio?

## How to Calculate Quick Ratio (Step-by-Step)

Conceptually, the quick ratio answers the question:

The core components of the metric include the following line items:

- Current Assets: Cash & Equivalents, Marketable Securities, Accounts Receivable (A/R)
- Current Liabilities: Accounts Payable (A/P), Short-Term Debt

## Quick Ratio Formula

The formula for calculating the quick ratio is as follows.

For example, let’s imagine that a company has the following balance sheet data:

- Cash = $20 million
- Marketable Securities = $10 million
- Accounts Receivable (A/R) = $20 million
- Inventory = $40 million

Next, the required inputs can be calculated using the following formulas.

- Current Assets = $20 million + $10 million + $20 million = $50 million
- Current Liabilities = $30 million + $10 million = $40 million

Lastly, we’ll divide the current assets by the current liabilities to arrive at the quick ratio:

## Quick Ratio vs. Current Ratio: What is the Difference?

## The Wharton Online and Wall Street Prep Private Equity Certificate Program

## How to Interpret Quick Ratio (High or Low)

The two general rules of thumb for interpreting the quick ratio are as follows.

- Higher Ratio → Sufficient Coverage of Current Liabilities
- Lower Ratio → Insufficient Coverage of Current Liabilities

## Quick Ratio Calculator – Excel Template

We’ll now move to a modeling exercise, which you can access by filling out the form below.

## Quick Ratio Calculation Example

- Cash & Equivalents: $20m
- Marketable Securities: $15m
- Accounts Receivable (A/R): $25m
- Inventory: $80m
- Accounts Payable: $65m
- Short-Term Debt: $85m

The company appears not to have enough liquid current assets to pay its upcoming liabilities.

- Cash and Cash Equivalents : +$5m
- Marketable Securities: +$2m
- Accounts Receivable (A/R): +$3m
- Inventory: +$25m
- Accounts Payable: +$5m
- Short-Term Debt: +$10m

However, the current ratio in Year 4 is 1.3x, more than double the 0.5x ratio from earlier.

## Everything You Need To Master Financial Modeling

The Wall Street Prep Quicklesson Series

7 Free Financial Modeling Lessons

## Quick ratio formula

## Quick ratio vs. current ratio

## The quick ratio is a basic liquidity metric that helps determine a company's solvency

- The quick ratio evaluates a company's ability to pay its current obligations using liquid assets.
- The higher the quick ratio, the better a company's liquidity and financial health.
- A company with a quick ratio of 1 and above has enough liquid assets to fully cover its debts.

## Quick assets

## Current liabilities

- Quick assets = ($10 million cash + $30 million marketable securities + $15 million accounts receivable)
- Current liabilities = $22 million
- Quick ratio = $55 million / $22 million = $2.5 million.
- The company's quick ratio is 2.5, meaning it has more than enough capital to cover its short-term debts.

## The bottom line

## Related articles

## Current ratio vs. quick ratio: Which one is more relevant for your SaaS business

## What is a current ratio?

- Key differences
- Who reviews the ratios
- Calculating SaaS quick ratio
- Monitor with ProfitWell Metrics
- Current vs quick ratio FAQs

## What is included in the current ratio?

## Current ratio formula

Current ratio calculations use a simple formula:

Current Ratio = Current Assets ÷ Current Liabilities

## What is a good current ratio for a company?

## What is included in the quick ratio?

## Quick ratio formula

Quick Ratio = (Cash + Cash Equivalents + Liquid Securities + Receivables) ÷ Current Liabilities

The firm's quick ratio is : 150,000 ÷ 100,000 = 1.5

## What is a good quick ratio for a company?

## Current ratio vs quick ratio: key differences

However, the current ratio and quick ratio have some key differences:

- Current ratio calculations include all the firm's current assets, while quick ratio calculations only include quick or liquid assets.
- The quick ratio of a company is considered conservative because it offers short-term insights (about three months), while the current ratio offers long-term insights (a year or longer).
- Quick ratio only uses quick assets and excludes any assets that can't be liquidated and converted into cash in 90 days or less. The current ratio considers all holdings that can be liquidated and converted into cash within a year.
- The quick ratio of a company excludes inventory from its calculations, while current ratio calculations include inventory.
- A 2:1 result is ideal for the current ratio, while a 1:1 is the perfect quick ratio for most businesses except SaaS.

## Who reviews quick and current ratio

- SaaS owners use these formulas to check their firm's liquidity and financial health. They can use them to identify the shortcomings and take quick corrective actions to keep the business in the green.
- Creditors use these ratios to determine a firm's credit worthiness. Ideal current and quick ratio numbers attest to its ability to repay loans and settle its debt on time.
- Investors use the ratios to determine if a company is a worthy investment. An investor can glean insights into how well a company manages its finances and determine the possible ROI from the ratios.

## Calculating SaaS quick ratio to track and reduce customer churn

SaaS Quick Ratio = (New MRR + Expansion MRR + Reactivation MRR) ÷ Contraction MRR + Churn MRR)

Let's say, for instance, these are the numbers from your SaaS financial statements.

Your SaaS Quick Ratio = ($250k + $150k +175k) ÷ $90k = 5.8

- < 1: You may not survive the next two months or less
- 1 to 4: Your company has a sluggish growth trajectory, and you'll run into cash flow problems if the growth MRR doesn't improve.
- 4: You have an excellent growth trajectory, and the company is growing efficiently. You're making back four or more times in growth MRR for every dollar you lose or churn.

## Monitor SaaS quick ratio with ProfitWell Metrics

## Current ratio vs quick ratio FAQs

## Why is current ratio important?

## How can a company improve its current ratio?

## How to find current ratio on a balance sheet?

## Join our community of SaaS leaders

Sign up to get early access to our latest resources and insights

By subscribing, I agree to receive the Paddle newsletter. Unsubscribe at any time.

## Related reading

## How to Calculate Your Quick Ratio

## Maddy Osman

## What is the Quick Ratio?

## Who Uses the Quick Ratio?

## How to Calculate the Quick Ratio

The basic formula for calculating your quick ratio (QR) is as follows:

QR = QA / CL

QA = Quick assets and CL = Current liabilities

QA = CE + MS + AR

QA = CA - I - E

CA = Current assets, I = Inventory, and PE = Prepaid expenses

Let’s take a closer look at each one.

## Formula Version 1 Explained

QR = (CE + MS + AR*) / CL

## Formula 1 Sample Calculation

To better understand how this formula works, consider the following example.

Accounts receivable (AR*) = $130,000* (of which $60,000 can be collected in 90 days)

Marketable securities (MS) = $7,000

Cash + cash equivalents (CE) = $63,000

Using the first formula, you would calculate your quick ratio as:

QR = ($63,000 + $7,000 + $60,000) / ($105,000 + $11,000)

## Formula Version 2 Explained

QR = (CA - I - PE) / CL

## Formula 2 Sample Calculation

Current Assets (CA) = $125,000

Prepaid expenses (PE) = $7,000

Using the second formula, you would calculate your quick ratio as:

QR = ($125,000 - $15,000 - $7,000) / ($120,000 + $10,000)

## How to Interpret the Quick Ratio

## What Does it Mean if Your Quick Ratio is Too Low?

## Comparing the Liquidity Ratios

## Quick Ratio vs. Current Ratio

You can calculate it using the following formula:

Current Ratio = CA / CL

CA = Current assets and CL = Current liabilities

## Quick Ratio vs. Cash Ratio

You can calculate your cash ratio using the following formula:

Cash Ratio = CE / CL

CE = Cash and cash equivalents and CL = Current liabilities

## Liquidity Ratios Example

## In Short: Understanding Your Quick Ratio

## What You Need to Know about Form 1096 and Its Due Date

## Interest Coverage Ratio Explained: Formula, Examples, How To Use It

## What Is the IRS Mileage Rate for 2023?

- Today's mortgage rates
- 30-year mortgage rates
- 15-year mortgage rates
- Calculate your mortgage payment
- Amortization schedule calculator
- How to get a mortgage
- Guide to getting the best mortgage rate
- Mortgage rate news

Refinancing your existing loan

- Refinance rates
- Cash-out refinance rates
- 30-year refinance rates
- 15-year refinance rates
- Mortgage refinance calculator
- How to refinance your mortgage
- Guide to cash-out refinancing
- Mortgage refinance resources

- Best mortgage lenders
- Best online lenders
- Best lenders for first-time homebuyers
- Best refinance lenders
- Best VA mortgage lenders
- Best FHA mortgage lenders
- How to find the best lender
- All mortgage lender reviews

- First-time homebuyers
- Adjustable-rate mortgages
- Veteran resources
- Jumbo loans
- Second home
- Closing costs
- Mortgage relief

Looking for a financial advisor?

Take our 3 minute quiz and match with an advisor today.

- Savings accounts
- High-yield savings accounts
- Money market accounts
- 1-year CD rates
- 5-year CD rates
- Checking accounts

- Savings calculator
- CD calculator
- Compound savings calculator
- All banking calculators
- How to save money
- Federal Reserve news
- What is a savings account?
- What is a money market account?
- Which certificate of deposit account is best?
- How to open a savings account
- Find a financial advisor

- Capital One Bank
- Marcus by Goldman Sachs
- American Express National Bank
- Synchrony Bank
- Barclays Bank
- All bank reviews

- American Express
- Bank of America
- Capital One
- Wells Fargo
- Credit card reviews
- Credit card compare tool
- Spender type tool
- Credit card payoff calculator
- Balance transfer calculator
- Credit utilization calculator
- All credit card calculators
- Improving your credit
- Travel Points & Miles Valuations

Looking for the perfect credit card?

Narrow your search with CardMatch™

- Personal loan rates
- Personal loans for bad credit
- Debt consolidation loan rates
- Low-interest personal loans
- Installment loan rates
- Home improvement loan rates
- Personal loan guide
- Debt consolidation guide
- Personal loans lender reviews
- Personal loans knowledge base

- Student loan rates
- Student loan refinance rates
- Students loans for bad credit
- Current student loan interest rates
- Private student loans
- Student loan forgiveness guide
- FAFSA guide
- Current student loans news
- Student loans lender reviews
- Student loans knowledge base
- Auto loan rates
- Auto loan refinance rates
- Current auto loan interest rates
- Auto loans for bad credit
- Auto loan guide
- Auto loan refinancing guide
- Auto loans lender reviews
- Auto loans knowledge base

- Loan calculator
- Personal loan calculator
- Loan payment calculator
- Student loan calculator
- Auto loan calculator
- Auto refinance calculator
- All personal loan calculators
- All student loan calculators
- All auto loan calculators
- Best investments
- Best short-term investments
- Best long-term investments
- Best investment apps
- Best cryptocurrency brokers
- Best index funds
- Best mutual funds

- Brokerage reviews
- E-Trade review
- Robinhood review
- TD Ameritrade review
- Robo-advisor reviews
- Betterment review
- Schwab Intelligent Portfolios review
- Wealthfront review

- How to start investing
- How to invest in stocks
- How to invest in ETFs
- How to invest in mutual funds
- How to buy an S&P 500 index fund
- How does a call option work?
- What are index funds and how do they work?
- What are put options?

- Annuity calculator
- Currency converter
- Capital gains tax
- Cryptocurrency investing
- Investment goal calculator
- Low-risk investments
- Mutual funds vs. ETFs
- Passive income ideas

- Home equity lender reviews
- Figure review
- Third Federal Savings & Loan review
- Discover review
- Spring EQ review
- Home equity loan calculator
- Home equity line of credit (HELOC) calculator
- Debt consolidation calculator
- Loan vs. line of credit calculator
- All home equity calculators

- Home equity loan and HELOC guide
- Home equity loans
- What is a home equity loan?
- What is a HELOC?
- How to borrow from home equity
- HELOC vs. Home equity loan
- Consolidate your debt using home equity
- Home equity loans with bad credit

- How to sell your house
- How much is my house worth?
- Selling your house & buying another
- Should I sell my house now or wait?
- Best time to sell a house
- Costs of selling a house
- How to sell your house fast
- Selling your house for cash

- How to buy a house
- How much home can I afford?
- Questions to ask when buying a house
- Should I buy a house now or wait?
- Backing out of an accepted offer
- First time homebuyers guide
- Home inspection checklist
- How much do you need to buy a house?

- Finding the best real estate agent
- How do Realtors get paid?
- Do I need an agent to sell my house?
- Questions to ask a Realtor
- Real estate agent vs Realtor vs broker
- Should I buy a house without an agent?
- Negotiating real estate commissions
- Best places to live in the US
- Cost of living comparison calculator
- Current housing market trends
- What is a buyers vs sellers market?
- How to save for a house
- Renting vs buying a home?
- How to invest in real estate
- Types of houses

- Best car insurance companies
- Cheapest car insurance companies
- Car insurance quotes
- How much is car insurance?
- Compare car insurance rates
- Car insurance by state
- Car insurance guide
- The true cost of auto insurance in 2023
- Learn more about car insurance

- Best home insurance companies
- Cheapest home insurance companies
- Home insurance quotes
- How much is homeowners insurance?
- Home insurance by state
- Homeowners insurance guide
- Learn more about home insurance

- Best life insurance companies
- Life insurance quotes
- Life insurance calculator
- Whole life insurance
- Term life insurance
- Learn more about life insurance
- Best renters insurance companies
- Learn more about renters insurance

- Allstate Insurance
- Geico Insurance
- Lemonade Insurance
- Liberty Mutual Insurance
- Progressive Insurance
- State Farm Insurance
- Travelers Insurance
- All insurance company reviews

- Best retirement plans
- Best IRA accounts
- Best alternatives to a 401(k)
- Best Roth IRA accounts
- Best places to roll over your 401(k)
- Best retirement plans for self-employed
- What is a spousal IRA?
- 401(k) contribution limits
- How to save for retirement
- How much to save for retirement
- How does an IRA work?
- How much should you contribute to your 401(k)?
- How does a Roth IRA work?
- How to pick 401(k) investments
- IRA vs. 401(k)
- Roth 401(k) vs. traditional 401(k)

- All retirement calculators
- Retirement calculator
- Retirement plan income calculator
- Roth IRA calculator
- Social Security benefits calculator
- Traditional IRA calculator
- 401(k) calculator
- 401(k) vs. Roth IRA calculator
- Best and worst states for retirement
- Best age to take Social Security
- How to avoid early withdrawals
- Inherited IRA rules
- Retirement withdrawal strategies
- Should you accept an early retirement offer?
- What to do if you're ready to retire
- What to do when you lose your 401(k) match
- BR myBankrate

## Small Business Calculator

Compare rates, mortgage rates.

- 30 year fixed
- 15 year fixed
- 30 year FHA
- 30 year fixed refi
- 15 year fixed refi
- 5/1 ARM (IO)
- 30 year jumbo
- See all mortgages

## HIGH YIELD CD AND MMA RATES

## OTHER RATES

## What Is the Quick Ratio?

seksan Mongkhonkhamsao / Getty Images

## Key Takeaways

- The quick ratio measures short-term liquidity.
- It does not include inventory in the calculation, so it’s more conservative than the current ratio.
- Quick ratio is one of many financial ratios used for evaluating firms.
- Values can be taken from the balance sheet in the company's most recent financial filing to calculate the quick ratio yourself.

Current liabilities are financial obligations that the firm must pay within a year.

As an example of the quick ratio, let's assume a company has the following current assets:

Now, assume current liabilities are $350,000.

The firm's quick ratio is: ($50,000 + $50,000 + $400,000) / $350,000 = $500,000/$350,000 = 1.43

- Profitability : These ratios measure the firm's ability to generate a return. Examples include profit margin, return on assets, and return on equity.
- Asset utilization : Asset utilization ratios measure how effective the firm is at selling its inventory, collecting its receivables, and employing its fixed assets.
- Liquidity : These ratios, the quick and current, measure the firm's ability to pay its short-term financial obligations.
- Debt utilization : These assess the firm's debt position relative to its assets and earnings.

## How To Find a Firm's Quick Ratio

## 6 Financial Ratios for Small Business Owners to Live By

## Why look at financial ratios for small business?

## Statements to use

Many ratios come from two financial statements : the balance sheet and the income statement.

- The balance sheet shows your business’s net value. It includes your assets, liabilities, and equity.
- The income statement includes all the money coming in and out of your business. It shows how you use assets and liabilities.

Learn what financial statements can do for your business, how to create them, and more.

## Small business financial ratios

Take a look at the following six financial ratios to use in your business.

## 1. Common size ratio

Common Size Ratio = Line Item / Total

Common size ratio for cash is 2.5% because:

$500 cash / $20,000 total = 0.025

## 2. Current ratio

Current Ratio = Total Current Assets to Total Current Liabilities

Current ratio is 2 to 1 because:

$20,000 current assets to $10,000 current liabilities = 2 to 1

## 3. Quick ratio

Quick Ratio = (Total Current Assets – Total Current Inventory) / Total Current Liabilities

($20,000 current assets – $15,000 current inventory ) / $10,000 current liabilities = 0.5

A healthy quick ratio is 1.0 or more.

## 4. Inventory turnover ratio

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Inventory turnover ratio is 1.16 because:

$1,750 cost of goods sold / $1,500 average inventory = 1.16

## 5. Debt-to-worth ratio

Debt-to-Worth Ratio = Total Liabilities / Net Worth

Debt-to-worth ratio is 1 because:

Note: Net worth = Assets – Liabilities

$10,000 total liabilities / ($20,000 – $10,000 net worth ) = 1

## 6. ROI (return on investment)

ROI = (Earnings – Initial Cost of Investment) / Initial Cost of Investment

($20,000 earnings – $7,500 initial investment ) / $7,500 initial investment = 1.67

The higher your ROI, the more your investments turn into income.

## Financial ratios for your small business

This article has been updated from its original publication date of February 18, 2016.

## Stay up to date on the latest accounting tips and training

You may also be interested in:

## Need help with accounting? Easy peasy.

Business owners love Patriot’s accounting software.

Explore the Demo! Start My Free Trial

## Relax—run payroll in just 3 easy steps!

## Relax—pay employees in just 3 steps with Patriot Payroll!

Business owners love Patriot’s award-winning payroll software.

## IMAGES

## VIDEO

## COMMENTS

Preparing a financial plan for your business is important if you plan to pursue business finance options such as loans, according to Inc. Business finance companies look at the short-term viability as well as the long-term potential of a bu...

There are a few simple things you can do to make planning for the future easier. Things like establishing a savings habit, making it automatic, and calculating how much you’ll need.

It’s impossible to eliminate all business risk. Therefore, it’s essential for having a plan for its management. You’ll be developing one covering compliance, environmental, financial, operational and reputation risk management.

The quick ratio is a calculation that measures a company's ability to meet its short-term obligations with its most liquid assets.

The quick ratio is the value of a business's “quick” assets divided by its current liabilities. Quick assets include cash and assets that can be

The Quick Ratio, also known as the Acid-test or Liquidity ratio, measures the ability of a business to pay its short-term liabilities by

If the quick ratio for your business is less than 1, it means that your liabilities outweigh your assets, while a quick ratio of 10 means

How to Calculate Quick Ratio (Step-by-Step) · Current Assets: Cash & Equivalents, Marketable Securities, Accounts Receivable (A/R) · Current Liabilities: Accounts

A company's quick ratio is a measure of liquidity used to evaluate its capacity to meet short-term liabilities using its most-liquid assets.

A 2:1 result is ideal for the current ratio, while a 1:1 is the perfect quick ratio for most businesses except SaaS. Who reviews quick and current ratio. Since

Calculating your quick ratio can give you insight into whether or not your business has enough assets to pay for operating expenses and short-term debt. But if

A quick ratio of 1.0:1 means you have a dollar's worth of easily convertible assets for each dollar of your current liabilities. Though acceptable ratios can

The quick ratio measures a firm's short-term liquidity. It excludes inventory from the current assets, and is more conservative than the

1. Common size ratio · 2. Current ratio · 3. Quick ratio · 4. Inventory turnover ratio · 5. Debt-to-worth ratio · 6. ROI (return on investment).