Also known as the acid test, the quick ratio is a measure of liquidity, which is the ability of a company to pay its short term debt obligations using a subset of current assets known as quick assets. The calculation of the quick ratio requires information found on a company's balance sheet.
Since prepaid expenses and inventories are more difficult to convert into cash than other current assets (cash, marketable securities, accounts receivable), a ratio known as the Quick Ratio, is sometimes used by analysts and investors to supplement the current ratio. A quick ratio of 1.0 or better is considered satisfactory. When the ratio is greater than 1.0, a company can easily satisfy current liabilities using their quick assets.
When drawing conclusions about the relative performance of a company, benchmark comparisons should be made with competitors in the same industry.
Company A's balance sheet indicates current assets of $12,240,000, inventories of $3,416,000 and prepaid expenses of $1,277,000. Total current liabilities were found to be $5,441,000.
Using the above formula, the quick ratio would be:
= ($12,240,000 - $3,416,000 - $1,277,000) / $5,441,000 = $7,502,000 / $5,441,000, or 1.38
In this example, Company A's quick ratio is well above 1.0, which is considered satisfactory.
liquidity ratio, current ratio, acid test, quick assets, cash ratio, defensive-interval ratio
Explore Investing Further
Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Looking for a way to avoid swap fees while trading forex?
By providing instant diversification for your portfolio, investing in ETFs can amplify the potential of any investor, novice or seasoned alike. We scoped the market to curate a list of the best ETF trading platforms available for US investors.
Our top beginner's pick for copy trading is eToro. Read on for more details, plus seven good alternatives.
Swing trading stocks can be a great way for investors to take advantage of short-term stock market movements and gain significant returns. If you're interested in swing trading, the key to success lies in selecting the right stocks to buy and sell quickly for a profit.
The table below lists the best stock picks under $2, listed on public exchanges.
The table below lists the best stock picks under $1, listed both on public and OTC exchanges.
This section will highlight the best EV-trading penny stocks available in the United States.
The demand for sustainable energy has grown rapidly in recent years. This has resulted in increased scrutiny of the automotive market. As a result, the electric vehicle (EV) industry has made significant advancements.
Intelligent Bio Solutions Inc. is a life sciences company, founded in 2016 with headquarters in New York and is engaged in performing diagnostic tests, real-time monitoring, and non-invasive surgery for its patients. The firm has developed a CoV-2 Biosensor, which can be used in RNA virus detection.
Hour Loop was founded in 2013 with headquarters in Redmond, Washington. It’s an online retailer involved in e-commerce in the United States that hit the public markets on Jan 7th of 2022. The company sells home/garden decor, electronic products, kitchenware, and apparel through walmart.com, amazon.com, and hourloop.com.