Quick Ratio (Acid-Test)

It is a stricter liquidity test that ignores inventory because inventory can be slow to sell.

Formal definition

Quick ratio equals current assets minus inventory, divided by current liabilities.

Why it matters

Bonding companies and conservative lenders use the quick ratio because overstated inventory can hide a cash crunch.

Where you see it

• Contractor bonding applications
• SBA loan underwriting
• Vendor credit reviews
• Credit analyst training
• MBA financial statement analysis

Worked example

1. Current assets:
2. Current liabilities: $80,000.
3. Quick assets =
4. Quick ratio = $80,000 ÷ $80,000 = 1.0×.
5. Interpretation: Without selling inventory, the business exactly covers short-term obligations.

How Business metrics calculates it

(Current assets − Inventory) ÷ Current liabilities.

The range we use for status labels

On Business metrics, the status band for this KPI is roughly 1 to 99. Higher values are generally healthier in this band. Your niche can sit outside it honestly — the label is a prompt to read the coaching, not a certificate.

Where people fool themselves

Dropping inventory out of the numerator is the point. If you then add prepaid expenses that cannot pay a supplier this week, you have rebuilt the fiction current ratio already told.

Run it on your own numbers: Seeking a Loan.