quick ratio (redirected from Acid Test (Liquidity Ratio))

Quick ratio

Indicator of a company's financial strength (or weakness). Calculated by taking current assets less inventories, divided by current liabilities. This ratio provides information regarding the firm's liquidity and ability to meet its obligations. Also called the Acid test ratio.

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quick ratio

A relatively severe test of a company's liquidity and its ability to meet short-term obligations. The quick ratio is calculated by dividing all current assets with the exception of inventory by current liabilities. Inventory is excluded on the basis that it is the least liquid current asset. A relatively high quick ratio indicates conservative management and the ability to satisfy short-term obligations. Also called acid-test ratio. Compare cash ratio. See also current ratio, net quick assets.

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Quick Ratio

A measure of a company's ability to meet its short-term obligations using its most liquid assets. It is calculated by subtracting inventories from current assets and dividing the quantity by its current liabilities. A higher quick ratio indicates greater short-term financial health. The quick ratio is more conservative than the current ratio, which measures much the same thing, because it excludes the value of inventory. This is because inventory can be less liquid than other current assets. The quick ratio may thus measure a worst-case-scenario ability to meet obligations.