The quick ratio is also known as the acid-test ratio and is an indicator of a firm’s short-term liquidity, and measures the ability to meet its short-term obligations with its most liquid assets.
Formula
Quick Ratio = (Current Assets – Inventories) / Current Liabilities
OR
Quick Ratio = (Cash and Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities
Example
Let’s assume Carl’s Clothing Store is applying for a loan and his balance sheet displays the following:-
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