From current assets, inventory, and current liabilities, compute the quick ratio, measuring short-term liquidity without relying on inventory.
Input Data
Results
At a glance:The quick ratio divides quick assets (current assets minus inventory) by current liabilities, testing liquidity without selling inventory.
Formula
quickRatio = (currentAssets − inventory) / currentLiabilities
$$\text{Quick Ratio} = \dfrac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$$How to Use
- Enter the current assets.
- Enter the inventory.
- Enter the current liabilities.
- Read the quick ratio.
FAQ
How is the quick ratio different from the current ratio?
Both measure short-term solvency, but the quick ratio is stricter because it excludes inventory from current assets. The current ratio = current assets ÷ current liabilities (counts everything); the quick ratio = (current assets − inventory) ÷ current liabilities. Inventory may not sell at book value when cash is urgently needed, so the quick ratio is a more conservative 'acid test' of liquidity.
What quick ratio is considered safe?
A common rule of thumb is 1.0 or above — meaning quick assets alone cover all short-term liabilities without selling inventory. Below 1.0 signals potential liquidity pressure. But the right level varies by industry; cash-based retailers can run below 1 safely, while others need a larger buffer.
Why subtract inventory but keep receivables?
Receivables are generally more readily realisable than inventory — they are confirmed debts with set due dates. Inventory must first find a buyer and may be discounted or go stale. So standard practice keeps receivables in quick assets; for an even stricter test, drop receivables too and use the cash ratio.
Which Hong Kong industries naturally run a low quick ratio?
Inventory-heavy, cash-sale sectors — supermarkets, convenience stores, dining, fast fashion — often show a low quick ratio yet operate fine because they collect cash daily and turn inventory fast. By contrast, construction or engineering firms with large receivables need to watch whether those receivables are actually collected. Always read the ratio against the sector's cash-collection pattern.
What is the relationship between the quick ratio and the defensive interval ratio?
Both focus on the most liquid assets but from different angles. The quick ratio = quick assets ÷ current liabilities (how many times short-term debt is covered); the defensive interval ratio = quick assets ÷ daily operating expenses (how many days you can survive with no new income). Together they show both debt coverage and survival time.
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.