Quick Ratio
Current assets excluding inventory, divided by current liabilities — a stricter test of short-term solvency.
Formula
Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Unit
ratio (x, times)
In depth
Also called the acid-test ratio, this measure removes inventory because it is the current asset least certain to convert to cash at its carrying value, particularly in a downturn when everyone is discounting. The gap between current ratio and quick ratio is therefore a direct measure of how much of a company's short-term comfort depends on selling stock. Some analysts also strip out prepaid expenses, which cannot be converted to cash at all. For an inventory-light services business the two ratios nearly coincide, which is itself informative.
Worked example
Current assets ₹500 crore less inventory ₹220 crore gives ₹280 crore against current liabilities of ₹300 crore, a quick ratio of 0.93. The current ratio of 1.67 looked comfortable; the quick ratio says the comfort is the inventory.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Quick Ratio” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.