The quick ratio, also called the acid-test ratio, tells you whether a business can pay its short-term liabilities using only assets it can turn into cash fast: cash, marketable securities and accounts receivable. You divide those by current liabilities, and CFI says a result above 1 means there's enough to cover what's due.
That's CFI's definition. Xero frames it around time: the quick ratio shows whether you've got enough cash and near-cash assets to cover the bills and loan payments due in the next 90 days. Xero counts cash equivalents as short-term investments, such as certificates of deposit or Treasury bills, that mature within three months.
Two quick ratio formulas that give the same answer
CFI gives two versions. They start from different places on the balance sheet and land on the same figure:
| Version | Formula (CFI) |
|---|---|
| Start from your liquid assets | (Cash and equivalents + Marketable securities + Accounts receivable) / Current liabilities |
| Start from your current assets | (Current assets - Inventory - Prepaid expenses) / Current liabilities |
Use whichever matches the figures you've got. If your balance sheet shows a single total for current assets, the second version is usually quicker. If it lists cash, investments and receivables line by line, the first one is.
The catch: why stock and prepayments are left out
CFI leaves out two things that sit in current assets. Prepaid expenses go, because you can't use them to pay other liabilities. Inventory goes too, because it may take too long to turn into cash. CFI says there are businesses where inventory counts as a quick asset, but it calls those cases very rare.
That's the whole difference from the current ratio, which keeps inventory and prepaid expenses in. Xero puts it another way: the current ratio looks at a 12-month window, while the quick ratio focuses on immediate liquidity.
Two worked quick ratio examples
Here are CFI's and Xero's worked examples side by side. Both are their US-dollar examples, as of October 2026, and the maths works the same in whatever currency you trade.
| Line | CFI example | Xero example |
|---|---|---|
| Cash | $10 million | $50,000 |
| Marketable securities | $20 million | $10,000 |
| Accounts receivable | $25 million | $30,000 |
| Current liabilities | $10 million (accounts payable) | $60,000 |
| Quick ratio | 5.5 | 1.5 |
CFI's company can pay its current liabilities 5.5 times over with its most liquid assets. Xero's business has $1.50 of liquid assets for every $1.00 it owes in the short term, which Xero calls a comfortable cushion for most small businesses. Same formula, very different pictures, and that's the point: the number only means something once you know the business behind it.
How to calculate your quick ratio
- Add up cash, cash equivalents, marketable securities and accounts receivable.
- Take current liabilities from the balance sheet.
- Divide the first figure by the second.
- Read the result against your industry, not a single rule.
What a good quick ratio looks like
Xero gives these bands as a general guide:
| Quick ratio | Reading (Xero) |
|---|---|
| Below 1.0 | May not cover immediate obligations |
| 1.0 to 1.5 | Healthy for most businesses |
| 1.5 to 2.0 | Strong liquidity position |
| Above 2.0 | Very strong, but possibly cash sitting idle |
Two things stand out. First, higher isn't always better: Xero says a ratio above 2.0 may mean cash is sitting there doing nothing. Second, industry changes everything. Xero says retail businesses often run between 0.5 and 0.8, because inventory ties up their cash, while service businesses usually run higher. So a retailer below 1 isn't automatically in trouble, and a service business with the same figure may well be.
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How to improve a low quick ratio
If yours is below 1.0, Xero's suggestions are practical ones:
- Speed up collection of what customers owe you.
- Tighten your customer payment terms.
- Negotiate longer payment terms with suppliers.
- Build consistent cash reserves.
Xero also suggests tracking the quick ratio monthly alongside the current ratio. One gives you an immediate liquidity snapshot; the other gives a broader view of your working capital health.
My verdict on the quick ratio
The quick ratio asks one blunt question: could you pay what's due soon without selling a single item of stock? I like it for exactly that reason. It's quick to work out, it's hard to flatter, and it tells you early when cash is getting tight. Work it out monthly, compare it with businesses like yours rather than a textbook number, and if it keeps slipping, start with how fast your customers pay you. That's usually where the cash is hiding.
Frequently asked questions
Is the quick ratio the same as the acid-test ratio?
Yes. CFI and Xero both use acid-test ratio as another name for the quick ratio. CFI also calls it a liquidity ratio.
What is a good quick ratio?
Xero says 1.0 to 1.5 is healthy for most businesses, 1.5 to 2.0 is strong, below 1.0 may not cover immediate obligations and above 2.0 may mean cash is sitting idle.
Why is inventory left out of the quick ratio?
CFI says inventory may take too long to convert to cash. Prepaid expenses are left out too, because they can't be used to pay other liabilities.
What's the difference between the quick ratio and the current ratio?
The current ratio includes inventory and prepaid expenses; the quick ratio doesn't. Xero says the current ratio looks at a 12-month window, while the quick ratio focuses on immediate liquidity.
Can a quick ratio be too high?
It can. Xero says a ratio above 2.0 is very strong but may signal cash sitting idle that could be put to work.
