Measure liquidity the strict way — the quick ratio covers short-term liabilities with only the most liquid assets, leaving out inventory.
Quick ratio = (cash + receivables) ÷ current liabilities. It excludes inventory and prepaid expenses because they can't reliably be turned into cash quickly. A ratio of 1 or more means the business can meet short-term obligations without selling inventory. General information only.
The quick ratio — the "acid test" — is the current ratio's tougher sibling. It counts only assets you could turn to cash almost immediately (cash and receivables), leaving out inventory that might take months to sell. A value of 1 or more means the business can pay its near-term bills without relying on selling stock.
Quick ratio = (cash + receivables) ÷ current liabilities
The quick ratio asks one narrow question: if every short-term bill came due and you could not sell a single item of stock, could you pay? That is why it leaves inventory out. It counts only money you already hold (cash and equivalents) and money customers already owe you (receivables), then divides by everything due within the year. The current ratio asks the same question but lets inventory in, which is why a business can look fine on the current ratio and tight on this one. The gap between the two numbers tells you how much of your liquidity is really stock waiting to be sold.
Cash is $40,000 and receivables are $35,000, so quick assets are $75,000. Current liabilities are $80,000. $75,000 ÷ $80,000 = 0.9375, which the calculator shows as 0.94 : 1 and rates "Tight". In plain terms, the business is $5,000 short. Adding $5,000 of cash, collecting $5,000 more of receivables, or clearing $5,000 of liabilities would each bring it to exactly 1.0.
Now stress it. Suppose 30% of those receivables are more than 90 days old and you would not bet on them. Counting only the collectible 70% gives quick assets of $40,000 + $24,500 = $64,500, and the ratio drops to about 0.81. The same books tell a noticeably worse story once you ask how good the receivables are. That is the most useful single thing to do with this number.
1.0 or above is the commonly quoted comfortable line. Below about 0.8 usually means the business depends on selling inventory or raising new cash to meet obligations. A very high ratio is not automatically good either: cash sitting idle well beyond what the business needs is earning little. Norms genuinely differ. Service businesses with no stock often run high quick ratios; retailers and restaurants that turn inventory daily can operate safely below 1.0. A lender reviewing your business may apply its own threshold, so treat any single cut-off as a starting point, not a verdict.
The ratio is only as good as the three numbers you type in, and those come from your books. If you have to reconstruct cash, receivables and bills from memory each month, the useful move is to keep them in one place so the ratio falls out automatically at every month-end. That is what the ToolWise small-business bookkeeping workbook is built to do. To see the looser version of this test, compare against the current ratio calculator. To see the absolute dollar cushion, use the working capital calculator.
Because it isn't always quickly or fully convertible to cash — it can be slow-moving, discounted, or obsolete. Leaving it out gives a more conservative liquidity picture.
Around 1 or higher is generally healthy, but it varies by industry. Retailers with fast inventory turns can run lower; service businesses often run higher.
Related: current ratio calculator · debt-to-equity calculator · inventory turnover calculator · all free calculators.
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