Home > Accounting Glossary > Quick Ratio
Quick Ratio: Definition and Meaning
Definition
The quick ratio is a liquidity ratio that compares highly liquid assets, such as cash and receivables, with current liabilities.
Why It Matters
The quick ratio is a more conservative measure of near-term liquidity than the current ratio because it generally excludes less-liquid current assets such as inventory and certain prepaid expenses. It can help management and lenders consider whether a company can meet short-term obligations using assets that may be converted to cash relatively quickly.
The ratio should be evaluated with collection quality, cash-flow timing, credit availability, debt terms, and industry conditions.
Example
A business has $50,000 of cash, $100,000 of receivables, and $100,000 of current liabilities. Its quick ratio is 1.5.
Related Terms
TYS provides accounting, tax, construction-accounting, and business-advisory support to closely held businesses, contractors, individuals, and families. With offices in Fairport, New York, and Walnut Creek, California, TYS helps clients better understand their financial information and prepare for important decisions.
Have a question about Quick Ratio or your business’s financial reporting?
Contact TYSThe information on this page is provided for general educational purposes only and is not accounting, tax, legal, financial, insurance, bonding, or business advice. Consult qualified professionals regarding your particular circumstances.
Back to the Accounting Glossary →