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Financial metrics glossary

Quick ratio: definition, formula and example

The quick ratio, also called the acid-test ratio, measures whether a company could pay its short-term obligations from its most liquid assets alone. It is cash, short-term investments and receivables divided by current liabilities, leaving out inventory and prepaid expenses.

Updated

Formula

  • Quick ratio = (Cash + Short-term investments + Receivables) ÷ Current liabilities
  • Equivalently: (Current assets − Inventory − Prepaid expenses) ÷ Current liabilities

Worked example

Sample

SAMPLE · Northbridge Analytics, September 2026

Northbridge Analytics, the fictional software company in the Financial Analyst's public sample, at the end of September 2026. Cash, receivables and payables are the figures its report prints; the other lines come from the balance sheet of the same books:

Balance sheet line Month end
Operating Bank $1,454,443.68
Stripe Clearing $8,053.27
Accounts Receivable $194,800.00
Prepaid Expenses $8,100.00
Total current assets $1,665,396.95
Accounts Payable $46,465.97
Accrued Payroll $73,756.67
Accrued Commissions $2,724.00
Deferred Revenue $115,750.00
Total current liabilities $238,696.64
  1. Quick assets = cash $1,454,443.68 + receivables $194,800.00 = $1,649,243.68
  2. Quick ratio = $1,649,243.68 ÷ $238,696.64 = 6.91
  3. Current ratio, for comparison = $1,665,396.95 ÷ $238,696.64 = 6.98

Quick ratio: 6.91

Left out: Stripe Clearing ($8,053.27) and Prepaid Expenses ($8,100.00). Stripe Clearing holds card payments collected but not yet paid out to the bank; counting it as cash too gives 6.94.

How to read it

  • A quick ratio of 1 means the most liquid assets exactly cover the obligations due within a year. Below 1, the business depends on selling stock, on new sales or on financing to meet them.
  • The gap between the current ratio and the quick ratio is usually inventory. A comfortable current ratio with a low quick ratio means the business is relying on stock that has yet to be sold.
  • Receivables count only if customers will pay. Old, disputed or doubtful invoices inflate the ratio, so read it next to the receivables aging.
  • Like the current ratio, it is a snapshot of one balance sheet date. Compare it across several period ends, calculated the same way.

How small US public companies compare (FY2025 10-Ks)

Median
1.34
Middle half
0.48 to 3.77
Companies
650

All industries, from Ataski's study of the fiscal 2025 annual reports (Form 10-K) that non-accelerated filers with revenue of $1 million to $250 million filed with the SEC: half the companies are above the median and half below, and the middle half fall within the range shown. These are small public companies, not private businesses, so read the figures as a reference point rather than a target.

Quick ratio by industry, with the method →

Source: Ataski analysis of SEC Financial Statement Data Sets (FY2025 10-K filings).

Where it shows up in the monthly management report

The report does not print a quick ratio. Its “Cash and working capital” page shows the cash, receivables and payables behind it, with days sales outstanding and days payable outstanding.

  • Open the sample workspace — a fictional company's books, worked by the Financial Analyst, with its monthly report. No signup.
  • The Financial Analyst — what it reads from your accounting system, what the report contains and what it costs.

Frequently asked questions

What is a good quick ratio?

Median 1.34 (middle half 0.48–3.77), 650 companies, FY2025 10-Ks: the quick ratio of small US public companies, with revenue of $1 million to $250 million and outside finance, insurance and real estate. A business that collects quickly and holds little stock can run with a lower ratio than one with slow customers. Compare it with your own history and with businesses that have the same model.

Source: Ataski analysis of SEC Financial Statement Data Sets (FY2025 10-K filings)

What is the difference between the quick ratio and the current ratio?

The current ratio counts every current asset, inventory and prepaid expenses included. The quick ratio counts only cash, short-term investments and receivables, so it asks whether obligations could be met without selling stock.

Can the quick ratio be higher than the current ratio?

No. Its numerator is part of current assets, so it can equal the current ratio — when every current asset is cash, a short-term investment or a receivable — but never exceed it.