quick ratio

Definition

The Quick Ratio, also known as the acid-test ratio, is a stringent measure of a company’s short-term liquidity by focusing on its most liquid assets. Calculated by dividing quick assets—typically cash, marketable securities, and accounts receivable—by current liabilities, this ratio excludes inventory which may not be quickly converted to cash. The quick ratio provides a realistic view of the company’s ability to promptly settle short-term obligations without relying on the sale of less liquid assets. A higher ratio is indicative of a robust liquidity position, offering reassurance to investors and creditors. It is a key indicator for assessing a company’s operational resilience and efficiency in managing immediate financial responsibilities.

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