Free Quick Ratio Calculator
Enter your balance sheet figures to get quick ratio, cash ratio, and a liquidity rating.
* Quick ratio excludes inventory and prepaid expenses since they can't be converted to cash quickly. Benchmarks vary significantly by industry, see the benchmark table below.
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What Is the Quick Ratio?
The quick ratio, also called the acid-test ratio, measures a company's ability to pay off its current liabilities using only its most liquid assets, cash, marketable securities, and accounts receivable, without relying on selling inventory. It's a stricter version of the current ratio, designed to answer one question: if all bills came due right now, could the company cover them without waiting to sell stock?
The name "acid test" comes from a 19th-century gold-mining technique, applying acid to a metal was a fast, reliable way to confirm it was really gold. In finance, the quick ratio plays the same role: a fast, no-nonsense check on real short-term solvency.
Quick Ratio Formula
Some versions of the formula start from total current assets and subtract inventory and prepaid expenses instead of listing the liquid assets individually, both approaches give the same result:
| Component | Included? | Why |
|---|---|---|
| Cash & cash equivalents | ✅ Yes | Instantly available |
| Marketable securities | ✅ Yes | Convertible to cash within days |
| Accounts receivable | ✅ Yes | Typically collected within 30–90 days |
| Inventory | ❌ No | May take weeks/months to sell, and at a discount |
| Prepaid expenses | ❌ No | Already spent, can't be converted back to cash |
What Is a Good Quick Ratio?
As a general rule, a quick ratio of 1.0 or higher is considered healthy. It means a company has enough liquid assets to cover all current liabilities without selling inventory. A ratio below 1.0 doesn't automatically signal trouble, but it does mean the company would need to rely on inventory sales, financing, or incoming receivables to meet short-term obligations.
| Quick Ratio | Interpretation |
|---|---|
| Below 0.5 | Tight, limited liquid buffer, worth investigating |
| 0.5 – 1.0 | Adequate for many businesses, industry-dependent |
| 1.0 – 1.5 | Healthy, comfortable short-term coverage |
| Above 1.5 | Strong, but very high ratios can also mean idle cash not being reinvested |
Quick Ratio vs Current Ratio vs Cash Ratio
These three liquidity ratios are often confused because they're all "can we pay our short-term bills" checks. The difference is how strict each one is about what counts as a liquid asset.
| Ratio | Formula | Strictness |
|---|---|---|
| Current Ratio | Current Assets ÷ Current Liabilities | Loosest, includes inventory & prepaids |
| Quick Ratio (Acid-Test) | (Cash + Securities + Receivables) ÷ Current Liabilities | Moderate, excludes inventory |
| Cash Ratio | (Cash + Cash Equivalents) ÷ Current Liabilities | Strictest, receivables excluded too |
The quick ratio sits deliberately in the middle: strict enough to exclude slow-moving inventory, but realistic enough to still count receivables that are reasonably expected to be collected soon.
Quick Ratio Benchmarks by Industry
| Industry | Typical Quick Ratio | Why |
|---|---|---|
| SaaS / Software | 1.0 – 2.5 | Low inventory, subscription revenue is predictable |
| Retail | 0.3 – 0.8 | Inventory-heavy, quick ratio naturally lower than current ratio |
| Manufacturing | 0.5 – 1.2 | High inventory and receivables from B2B customers |
| Professional Services | 1.2 – 2.0 | Minimal inventory, mostly receivables and cash |
| Construction | 0.8 – 1.5 | Large receivables, project-based billing cycles |
Always compare a company's quick ratio against its own industry average and its own historical trend rather than a single universal benchmark.
How to Improve Your Quick Ratio
- Accelerate collections: tighten payment terms, automate invoicing, or offer early-payment discounts to convert receivables to cash faster.
- Pay down short-term liabilities: refinance short-term debt into longer-term facilities to reduce the denominator.
- Delay non-essential capital spending: preserve cash and marketable securities rather than tying them up in fixed assets.
- Build a cash reserve target: many finance teams set a minimum cash-on-hand policy (e.g. 3 months of opex) to keep the ratio stable through revenue cycles.
- Negotiate vendor terms: extending payables terms (without damaging vendor relationships) reduces near-term liability pressure.
Frequently Asked Questions
What is quick ratio?
The quick ratio, also called the acid-test ratio, measures a company's ability to pay off current liabilities using only its most liquid assets: cash, marketable securities, and accounts receivable, without relying on selling inventory.
What's the difference between quick ratio and current ratio?
The current ratio includes all current assets, including inventory and prepaid expenses. The quick ratio excludes inventory and prepaid expenses because they can't be converted to cash as quickly, making it a stricter measure of immediate liquidity.
How do you calculate the quick ratio?
Add cash and cash equivalents, marketable securities, and accounts receivable, then divide by current liabilities. Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) ÷ Current Liabilities. It can also be calculated as (Current Assets − Inventory − Prepaid Expenses) ÷ Current Liabilities.
What is a good quick ratio?
A quick ratio of 1.0 or higher is generally considered healthy, meaning liquid assets fully cover current liabilities without needing to sell inventory. The ideal range varies by industry: SaaS and services companies often run 1.0–2.5, while inventory-heavy businesses like retail typically sit lower, around 0.3–0.8.
What does the quick ratio tell you?
The quick ratio tells you whether a company could cover all of its short-term debts right now using only cash, marketable securities, and receivables, without needing to sell inventory or raise additional financing. It's one of the fastest checks of a company's near-term solvency.
What's a good quick ratio for a SaaS company?
SaaS companies typically run higher quick ratios than product-based businesses, often between 1.0 and 2.5, since there's little to no inventory dragging down current assets and subscription revenue makes receivables more predictable to collect.
