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Quick ratio
Also called acid-test ratio.
Cash, marketable securities and receivables divided by current liabilities - a test of whether a business could meet near-term obligations without selling inventory.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Inventory is excluded because it may not convert to cash quickly or at book value, which is the whole point of the measure: it asks what could be paid if trading stopped tomorrow. Prepaid expenses are excluded for the same reason.
It appears in bank and asset-based credit agreements as a financial covenant, tested quarterly or monthly against a stated minimum, with a breach constituting an event of default whether or not payments have been missed. It rarely appears in deposit-based underwriting, which does not use a balance sheet at all.
A ratio below one means current obligations exceed liquid assets, which is normal in some business models and alarming in others. Lenders read it against the industry and against the trend rather than against a universal threshold.
Where this one catches people
It is a snapshot on a single date, and businesses that know when they are measured can arrange the snapshot - delaying payables, accelerating collections, drawing the line at a favourable moment. Where it functions as a covenant, the testing date and whether it is a point-in-time or average measurement matter as much as the threshold.
Worked through
Illustration. Cash $80,000, receivables $220,000, inventory $300,000, current liabilities $250,000.
Current ratio: ($80,000 + $220,000 + $300,000) / $250,000 = 2.4, which looks comfortable. Quick ratio: ($80,000 + $220,000) / $250,000 = 1.2. The business is solvent on a near-term basis but far less liquid than the current ratio suggests, because more than half its current assets are stock it would have to sell to realise.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
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Quick ratio — common questions
What does quick ratio mean?
Cash, marketable securities and receivables divided by current liabilities - a test of whether a business could meet near-term obligations without selling inventory.
Where does quick ratio catch people out?
It is a snapshot on a single date, and businesses that know when they are measured can arrange the snapshot - delaying payables, accelerating collections, drawing the line at a favourable moment. Where it functions as a covenant, the testing date and whether it is a point-in-time or average measurement matter as much as the threshold.
Is quick ratio the same as an interest rate?
Quick ratio is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does quick ratio apply to?
Term Loan, Business Line of Credit, SBA Loan, Asset-Based Lending.
Is there a worked example of quick ratio?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside quick ratio?
Borrowing base, Covenant, Debt service coverage ratio, Profit and loss statement, Qualification criteria.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.