Balance sheet
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.
The formula
Quick ratio = (Current assets − Inventory) ÷ Current liabilitiesFigure
Why 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.
Why it matters
It is the pessimist's liquidity check, and pessimists survive.
The mistake everyone makes
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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