The quick ratio is (cash + cash equivalents + accounts receivables)/current assets. The quick ratio is a measure of the ability of a company to pay its short-term debts. Because only quick assets –- assets that will be quickly converted to cash –- are included in the quick ratio, it is a particularly conservative measure of a company's bill-paying ability. The quick ratio includes accounts receivable because they are usually converted to cash in 90 days; but the quick ratio does not include inventories, which may take as long as a year to become cash. As with all ratios, how high a quick ratio should be varies among industries, but usually a quick ratio of 1:1 or higher is considered good. In other words, a quick ratio of 100% tells creditors that the company could pay its immediate bills even if no inventory is converted to cash. Note that the quick ratio is also known as the acid test ratio. |
