What is Quick ratio?
Also known as: acid-test ratio
A ratio showing whether a company can cover its short-term debts without selling inventory, using only assets that quickly turn into cash. Formula: (cash + short-term investments + accounts receivable) ÷ current liabilities. The difference from the current ratio: inventories are not included in the numerator, because selling them takes time and their price may fall. Many finance textbooks regard a value of around 1 as comfortable, but a single ratio does not give a sufficient conclusion: it should be compared with companies in the same industry and with previous periods.
Source: BDC glossary: acid test ratio