MBATricks

Tips and Tricks about my MBA experience

Finance :: Liquidity Ratio :: Quick Ratio (or Acid Test Ratio)

The Quick Ratio (like the Current Ratio) helps you to see if the current assets can reimburse the current liabilities. The difference is that you need to remove the inventory (as it may be difficult to liquidate it rapidly).

 

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

 

Note that you can find the current asset, the inventory and the current liabilities in the Balance Sheet.

 

The quick ratio is good when over 1.00. It means that regardless the inventory, the company can reimburse its short term liabilities by liquidating its short term assets.

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