(Cash & Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities
Prepaid expenses (unable to pay other liabilities) and inventory (not instant cash conversion) are not included in the calculation of quick ratio. This is therefore for those with a short term view of liquidity.
This excel template contains 4 sections for input:
- Marketable Securities
- Accounts Receivable
- Accounts Payable
Also known as a liquidity ratio, or 'acid test', this is a very important tool which helps to calculate whether a business can meet short-term obligations. The alternative name of acid test for this type of calculation derives from the fact that it is used to evaluate whether a company has the instant resources to pay for liabilities with near-cash assets.
The calculation for a quick ratio calculation is as follows: