The Quick Ratio is used for determining a company's ability to cover its short term debt with assets that can readily be transferred into cash, or quick assets.

The formula for quick ratio is: Quick ratio = Quick assets ÷ Current liabilities. The Current Liabilities portion references liabilities that are payable within one year.

The current ratio and quick ratio are liquidity ratios measuring a company's ability to pay off its short-term liabilities with its short-term assets. Financial analysts will often also use two other ratios to calculate the liquidity of a business: the current cash debt coverage ratio and the cash conversion cycle (CCC).. The quick ratio is a more stringent test of liquidity than the current ratio formula. The current ratio is a financial liquidity ratio that is most commonly used to measure a company’s ability to meet its short term debt obligations. The quick ratio is very similar to the current ratio (which you can calculate using the Current Ratio Calculator) with the difference between the current ratio and the quick ratio being that the quick ratio subtracts the amount of the current inventory from the current assets while the current ratio does not. Quick ratio is similar to the current ratio, in terms of calculating current assets, however, while calculating the quick ratio, we eliminate Inventory & prepared expenses.

Advanced ratios.
The current ratio is an important measure of liquidity because short-term liabilities are due within the next year. The reason being the assumption that Inventory may not be realized into cash within a period of 90 days. Current assets are defined as assets convertible to cash within one year—with its current liabilities—liabilities that are due within one year. Only cash and assets that can be immediately converted into cash are included, which excludes inventory. Before you can try improving this ratio, you must know what your company’s current asset ratio is. Explanation. The quick ratio (or acid-test ratio) is a more conservative measure of liquidity than the current ratio. The quick ratio is more restrictive than the current ratio. Note: Here the inventory valuation is deducted from the total current assets to reach at the Quick assets because the inventory cannot be liquidated within 90 days of time, therefore, it is always advisable to deduct the inventory amount from the current assets to get the exact value of the quick assets. This means that a company has a limited amount of time in order to raise the funds to pay for these liabilities. Quick Assets are the ones that can be converted to cash in the short term or in a period of 90 days.

A current ratio that is greater than 1 means that the current assets are greater in value than the current liabilities. Calculate the current asset ratio. The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is very similar to the quick ratio (which you can calculate using our Quick Ratio Calculator). The current cash debt coverage ratio is an advanced liquidity ratio that measures how capable a business is of paying its current liabilities using cash generated by its operating activities (i.e.
You can find the current ratio by dividing the total current assets by the total current liabilities. It calculates how many dollars in assets are likely to be converted to cash within one year to pay debts that come due during that same year. The current ratio is another financial ratio that serves as a test of a company's financial strength.

Quick Ratio: The quick ratio is an indicator of a company’s short-term liquidity, and measures a company’s ability to meet its short-term obligations with its … Add up all current assets and divide this amount by the total of all current liabilities. The Quick Ratio is a more stringent measure of short-term liquidity as compared to the Current Ratio. A ratio of two or higher is considered good. 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 second step in liquidity analysis is to calculate the company's quick ratio or acid test.