Quick ratio is a measure of short-term liquidity of a company and its ability to meet its debt obligations. The quick ratio indicates the amount of liquid assets a company has per dollar of current liabilities. Hence, a quick ratio of 1.5 indicates that it has $1.50 in liquid assets to cover $1 it has in current liabilities.
Quick Ratio = (Current Assets - Inventory) ÷ Current Liabilities
Unlike the current ratio, the company’s inventory is not included in the quick ratio as inventory is not considered a liquid asset. The quick ratio may also be referred to as the acid-test ratio or the quick assets ratio.