How to Use Quick Ratio Calculator
Enter the current Assets.
Enter the current liabilities.
How to calculate Quick ratio
Quick Ratio Formula:(Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
- A Retail store has current assets of $41,000
- Since we are calculating quick ratio we need to minus the inventory
- The stores inventory is $5,600: $41,000-$5,600 = $35,400
- Quick assets are $35,400 and current liabilities are $33,300
- $35,400/$33,300 = 1.06
- 1.06 is our quick ratio
- A competing retail stores current assets are $50,000
- Its inventory is $8,700: $50,000 - $8,700 = $41,300
- The stores quick assets are $41,300
- The Stores current liabilities are $43,050
- $41,300/$43,050 = 0.95
- 0.95 is the stores quick ratio
Quick Ratio is very similar to Current ratio although with quick ratio the assets are slightly different.
Current Assets: Cash, Marketable securities, Receivables, Inventory
Quick Assets: Cash, Marketable securities, Receivables
Note: Quick Assets does not include inventory
Therefore the difference between the two ratios is the use of inventory. Inventory can be difficult to sell short term, hence there are some questions in including inventory in the liquidity of a business.
Quick ratio is used to calculate the company's ability in paying its current debt by their due dates with its quick assets. Only assets that may be liquidated quickly are used, this is why inventory is not used in quick ratio. Inventory can generally not be converted to cash quickly.
Quick ratio does have some drawbacks as it does not provide information on the level and timing of cash flows which plays a big factor in determining if a company can pay back its liabilities by their due date. It also assumes that accounts receivable are easily available for collection, this may not be true in certain cases.
We also have a Current Ratio Calculator