The quick ratio divides current assets minus inventory by current liabilities. It's a tougher liquidity test than the current ratio, since inventory can be slow to sell or impossible to liquidate at book value in a crunch — only cash, receivables, and other readily convertible assets count.
The formula
Current Assets − InventoryCurrent Liabilities
= Quick Ratio
Why it matters
- —A company can show a healthy current ratio while its quick ratio reveals a much thinner liquidity cushion — the gap between the two is itself informative.
- —Most useful for businesses where inventory is genuinely hard to convert to cash quickly: retailers, manufacturers, anyone holding physical stock.
- —Less relevant for service or software businesses that carry little to no inventory in the first place — current ratio alone is usually sufficient there.
How to read it
| < 0.5× | Liquid assets fall well short of near-term obligations |
| 0.5×–1.0× | Manageable, but worth checking the inventory-to-receivables mix |
| > 1.0× | Healthy — can cover short-term liabilities without selling inventory |