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What are quick ratios in reference to a financial statement?

Question: What are quick ratios in reference to a financial statement?

Answer: Quick ratios are an indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets and is calculated as such:

 

Quick ratio = (current assets - inventories) / current liabilities, or

Quick ratio = (cash and equivalents + marketable securities + accounts receivable) / current liabilities

 

The quick ratio measures the dollar amount of liquid assets available for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company's liquidity position, also known as the "acid-test ratio" or "quick assets ratio."

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