Formula: ((Current Assets - Inventory and Other Current Assets) / Current Liabilities) x 100
The Quick Ratio is like the current ratio, but only considers the most liquid assets, so you would need to exclude inventory
and prepaid expenses. Like quick ratio, this ratio will tell you the percentage of 2020's debts that you can pay off with the most liquid assets.
The Quick Ratio is a more efficient liquidity ratio because it eliminates inventories and other current assets from current assets.
The quick ratio (or acid test) is a strict measurement of liquidity because it excludes inventory and other current assets that usually
consist of prepaid insurance and taxes that may not be readily convertible into cash. This may distort a firm's financial analysis.
The ratio is based on the assumption that the firm will pay its short-term debts with cash and receivable collections.
While such numbers-based ratios offer insights into certain aspects and viability of businesses, they may not provide a complete
picture of the overall health of the business. It is important to additionally look at other associated measures to assess
the true picture.fer your financial position is. The higher the ratio, the more flexibility there is between debt
obligations and the availability of the assets to pay them.
Learn more ratios