Quick Ratio calculator measures a company’s short-term liquidity, the ability to use its quick assets to pay its current liabilities. Quick Ratio formula is:
Definitions and terms used in Quick Ratio Calculator
- Refers to money in the physical form of currency. Cash includes money in the cash pan, petty cash, cash in the locker, bank account and customers’ checks.
- Marketable Securities
- A near-cash (liquid) assets in the form of equity or debt instrument (share/stock, bond or note) that are listed on an exchange and can be readily bought or sold.
- Accounts Receivable
- Money owed to a company by customers (individuals or corporations) for goods or services that have been delivered or used, but not yet paid for. In it is also known as Sales on credit.
- Current Liabilities (short term debt)
- Obligations or debts that are due within one fiscal year or the operating cycle. For example, accounts payable, accrued liabilities, dividends, unpaid taxes and other debts that are due within one year.
What is Quick Ratio
Quick Ratio is an indicator of company’s short-term liquidity. It measures the ability to use its quick assets (cash and cash equivalents, marketable securities and accounts receivable) to pay its current liabilities.
Quick ratio formula is:
Quick ratio specifies whether the assets that can be quickly converted into cash are sufficient to cover current liabilities.
Quick Ratio Analysis
Ideally, quick ratio should be 1:1.
If quick ratio is higher, company may keep too much cash on hand or have a problem collecting its accounts receivable. Higher quick ratio is needed when the company has difficulty borrowing on short-term notes. A quick ratio higher than 1:1 indicates that the business can meet its current financial obligations with the available quick funds on hand.
A quick ratio lower than 1:1 may indicate that the company relies too much on inventory or other assets to pay its short-term liabilities.
Many lenders are interested in this ratio because it does not include inventory, which may or may not be easily converted into cash.