1. What is the Quick Ratio?

The Quick Ratio (also known as the Acid-Test Ratio) measures a company's ability to meet its short-term obligations with its most liquid assets. It excludes inventory and prepaid expenses from current assets, providing a more conservative view of liquidity than the current ratio.

2. How Does the Calculator Work?

The calculator uses the Quick Ratio formula:

Where:

• \( \text{Current Assets} \) — Assets expected to be converted to cash within one year
• \( \text{Inventory} \) — Goods available for sale, raw materials
• \( \text{Prepaid Expenses} \) — Payments made in advance for future expenses
• \( \text{Current Liabilities} \) — Obligations due within one year

Explanation: The ratio shows how well a company can pay current liabilities without selling inventory or relying on prepaid expenses.

3. Importance of Quick Ratio

Details: A ratio of 1 or higher typically indicates good short-term financial health. It's particularly important for creditors assessing a company's ability to meet obligations.

4. Using the Calculator

Tips: Enter all values in the same currency. Current liabilities must be greater than zero for calculation. Values should be from the same accounting period.

5. Frequently Asked Questions (FAQ)

Q1: What's a good quick ratio?
A: Generally, 1:1 is considered acceptable, but this varies by industry. Higher ratios indicate better liquidity.

Q2: How does quick ratio differ from current ratio?
A: Current ratio includes all current assets, while quick ratio excludes inventory and prepaid expenses which are less liquid.

Q3: When is quick ratio more useful than current ratio?
A: When inventory turnover is slow or when prepaid expenses represent a significant portion of assets.

Q4: Can quick ratio be too high?
A: Yes, an excessively high ratio might indicate inefficient use of assets (too much cash sitting idle).

Q5: How often should quick ratio be calculated?
A: Typically calculated quarterly with financial statements, or more frequently for internal monitoring.