Debt and bankruptcy risk · updated October 21, 2026
What is the quick ratio (acid test) and how is it calculated
The quick ratio shows whether the cash in the bank and the money customers owe cover the bills due within a year, without counting on selling inventory. It is a stricter version of the current ratio: inventory is left out, because it is hard to sell when things go badly.
The quick ratio formula
- Current assets
- Cash, money owed by customers, inventory: anything that turns into cash within a year.
- Inventory
- Raw materials, work in progress and unsold goods.
- Current liabilities
- What has to be paid within a year: suppliers, wages, loan instalments.
Worked example
A company has $3 billion in current assets, of which $1.2 billion is inventory, and $2 billion in current liabilities.
Without inventory, the company covers 90% of its short-term bills. The current ratio (with inventory) would be 1.5.
How to read the quick ratio
Supermarkets and restaurants often have a low quick ratio, because they sell their goods fast and get paid on the spot. For them it is not a bad sign. For a software company, a figure below 1 would be unusual.
When the quick ratio can fool you
Receivables that are hard to collect: they count, but a customer who does not pay helps nobody. One single day a year: the balance sheet shows a fixed date; a company can look better at year end than in the other months.
Related terms
Learn it in the Academy
Questions about the quick ratio
How is it different from the current ratio?
The current ratio includes inventory, the quick ratio does not. When the gap between them is large, the company depends heavily on how fast it sells its goods.
What is a good quick ratio?
Above 1 is comfortable for most companies. Between 0.5 and 1 is normal in industry. What matters more is that it does not fall year after year.
These explanations are for information only. They are not a recommendation to buy or sell.
Back to the glossary