How this number is made
The quick ratio leaves inventory and prepaid expenses out. It asks whether the assets you can turn into cash without a sale of goods cover the bills due soon.
- Do not include inventory.
- Receivables that you do not expect to collect should come out too.
Formula
Quick ratio = quick assets ÷ current liabilities.
Worked example
With the figures already in the form, quick ratio is 0.89.
Questions
How is this different from the current ratio?
The current ratio counts inventory. The quick ratio does not. A retailer can look liquid on the current ratio and tight on this one.
What number is safe?
Above 1 means the quick assets cover the current bills. Whether that is comfortable depends on how fast the receivables actually arrive.