The Quick Ratio is the first liquidity ratio within RatioAnalysis.net. This ratio is stricter than the current ratio, in that only more liquid assets are used to cover the current liabilities. Specifically, it uses cash & cash equivalents, short-term investments and short-term (current) receivables to meet the current liabilities.
So what is different from the current ratio? There are some current assets (used in the current ratio) that are either not convertible to cash, such as pre-paid assets, or are either dependent on other factors to turn into cash, for example, the state of the economy in selling inventory.
Since the Quick Ratio is stricter than the current ratio you have more flexibility (and can maybe feel ‘safer’) to meet your short-term obligations if you have a strong result, in comparison to an equivalent current ratio. In other words, it’s meant to be a tougher test and if the business ‘passes’ the tougher test, then in theory you can sleep a little easier at night.
Quick Ratio Formula
(Cash & Cash Equivalents + Short-Term Investments + Current Receivables) / Current Liabilities
Quick Ratio Calculator
The calculator asks for:
Cash & Cash Equivalents, which are found on the balance sheet.
Short-Term Investments, which are also found on the balance sheet.
Current Receivables, which are found on the balance sheet.
Current Liabilities, which are again found on the balance sheet.
Want to know more about the Ratios used in the S&P500 stock calculations, including all formulas?
Check out their individual ratio pages via the main menu for Descriptions, Calculators & Formulas
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