Quick Ratio

A company’s quick ratio (also referred to as an “asset-test ratio”) is calculated by dividing certain of its current assets by its current liabilities. It differs from a company’s current ratio in that it excludes assets that cannot be converted into cash within 90 days (these are prepaid expenses and inventories), thus making it a more conservative measure than the current ratio.

The mathematical representation of this is Quick Ratio = [Current Assets – Inventory – Prepaid Expenses] / Current Liabilities.

A quick ratio greater than or equal to 1 indicates a company has enough liquid assets to meet its short-term obligations. See also Current Ratio.