2016-12-21 00:00:00 Finance and Accounting English Learn what the quick ratio is, how it is calculated, what it means for small businesses and see an example. https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2017/03/08214541/business-owner-discusses-his-companys-quick-ratio-with-accountant.jpg Small Business Terms: What Is the Quick Ratio?

Small Business Terms: What Is the Quick Ratio?

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The quick ratio is a commonly used financial ratio that shows the strength of a company’s liquidity, which is a company’s ability to pay its bills from cash or from assets that can be converted to cash quickly. The quick ratio is also known as the acid-test ratio. The formula for the ratio is:

Quick ratio = (cash and equivalents + marketable securities + accounts receivable) / current liabilities

For example, assume a company has $100,000 in cash, $200,000 in marketable securities, and $150,000 in accounts receivable. It’s current liabilities are $150,000. It’s quick ratio is:

($100,000 + $200,00 + $150,000) / $150,000 = 3

The higher the value the better. In this case, the company has $3 available for every $1 in current liabilities.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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