Quick ratio
The current ratio, but excluding inventory, which might not sell.
Also called the acid test. It removes inventory from current assets on the grounds that in a crisis you may not be able to sell it, or only at a heavy discount.
For a retailer with fashionable stock, this distinction is the entire ball game.
Quick ratio = (Current assets − Inventory) ÷ Current liabilitiesWhy a solvent bank can die in 48 hours
The bank lent your deposit out. That is not a scandal, it is what a bank is. It only becomes fatal when everyone asks for their money on the same afternoon.
It is the pessimist's liquidity check, and pessimists survive.
Using the current ratio for a business whose inventory goes out of fashion.
Related terms
See Quick ratio on a real company
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