Quick Ratio

The quick ratio (aka "Acid test" or "Acid test ratio") is a key measure of a firm's short-term liquidity, it answers the question "Can this firm meet its current obligations from its liquid assets if suddenly all sales stop"? The higher the quick ratio, the better the position of the company. Usually a quick ratio of 1.0 or higher is considered satisfactory by lenders and investors. The quick ratio is more conservative than the current ratio, because it excludes inventory from current assets. Inventory is excluded because some companies have difficulty turning their inventory into cash, and thus the current ratio would over-estimate the short-term financial strengths of companies in those cases.

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