What Is a Quick Ratio?

Quick ratio refers to the ratio of a company's quick assets to current liabilities. Quick assets are the balance of a company's current assets minus inventory and prepayments. They mainly include cash, short-term investments, bills receivable, and accounts receivable . ^[1]

Basic Information

Chinese name

Quick ratio

Foreign name

Acid-test Ratio

nickname

Acid Test Ratio

Explanation

Quick ratio =

Interrelation of current ratio, quick ratio and cash ratio:

1. Pay with all current assets

Examples of correlations between current ratios, quick ratios and cash ratios:

The quick ratio can directly reflect the company's

Quick-action ratio Conservative quick-action ratio

The conservative quick ratio is also called the overspeed ratio , which is the sum of cash, short-term securities investment and net receivables, divided by the ratio of current liabilities.

It is due to the differences between industries. In addition to deducting inventory when calculating the quick ratio, it can also remove other items (such as pending expenses, etc.) that may not be related to the current cash flow from the current assets. . The over-speed ratio refers to the over-speed assets (monetary funds, short-term securities, and net accounts receivable) of an enterprise to reflect and measure the strength of the company's realizing ability, and evaluate the short-term debt-paying capacity of the enterprise.

Quick ratio calculation formula

Calculation formula of conservative quick action ratio:

Conservative quick ratio = (cash + short-term securities + net accounts receivable) / current liabilities × 100%

Among them, the net account receivable refers to the net amount of accounts receivable and other receivables minus allowance for bad debts, which is essentially the net receivables of customers with high reputation.

Due to the calculation of the overspeed ratio, in addition to deducting inventory, other items that may not be related to the current cash flow (such as pending expenses) and other important factors affecting the credibility of the overspeed ratio are removed from the current assets Net receivables from customers), so we can better evaluate the strength of the company's liquidity and solvency. ^[3]