What Is A Quick Ratio?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise:Investment Banking | Private Equity

The quick ratio is a conservative indicator of the short-term liquidity of a firm. A higher quick ratio means the company is in a better position to pay off any short-term liabilities.

The calculation for the quick ratio is:

  • ( Current Assets – Inventories ) / Current Liabilities

The quick ratio is only used for calculating short-term liabilities, and therefore only Current Assets are considered. The reason Inventory is excluded is that sometimes it can be hard to convert into cash, and therefore not suitable for meeting short-term obligations.

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Patrick Curtisis a member ofWSO Editorial Boardwhich helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis This content was originally created by memberWallStreetOasis.comand has evolved with the help of our mentors.