Quick Ratio (Acid Test): How to Measure True Business Liquidity

Can your business pay its bills tomorrow if all sales stopped today? The quick ratio, also known as the acid test ratio, answers this critical question by measuring your true short-term liquidity.

What Is the Quick Ratio?

The quick ratio measures a company's ability to meet short-term obligations using only its most liquid assets—those that can be converted to cash quickly without significant value loss.

Quick Ratio vs. Current Ratio

The key difference: the quick ratio excludes inventory and prepaid expenses because these cannot always be quickly converted to cash at full value.

Interpreting Your Results

• Below 0.5: Serious liquidity concerns
• 0.5 - 0.8: Tight liquidity
• 0.8 - 1.0: Adequate liquidity
• 1.0 - 1.5: Healthy liquidity
• Above 1.5: Strong liquidity

Strategies to Improve Quick Ratio

• Accelerate receivables collection
• Increase cash reserves
• Reduce current liabilities
• Convert short-term debt to long-term

Conclusion

The quick ratio provides a conservative view of your business's ability to meet short-term obligations. Use our Quick Ratio Calculator to assess your current position and track improvements over time.