# Quick Ratio (QuR) and Acid-Test Ratio

## Quick Ratio (QuR) and Acid-Test Ratio

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The Quick Ratio (QUR) is a model or a method used for measuring the liquidity of a company by calculating the ratio between all assets quickly convertible into cash and all current liabilities.

It specifically excludes inventory.

Quick Ratio is an indicator of the extent to which a company is able to pay current liabilities without relying on the sale of inventory.

#### Formula for the Quick Ratio QUR

Cash + Accounts Receivable
Quick Ratio = ---------------------------------
Current Liabilities

Cash + Accounts Receivable
+ Cash Equivalents
= ----------------------------------
Accruals + Accounts Payable
+ Notes Payable

#### Values of Quick Ratio QUR

In most cases a QUR of 1:1 or higher indicated a good financial health and suggests that a company does not have to rely on the sale of inventory to pay the bills.

#### Other names related to the Quick Ratio QUR

This ratio is also known as the Acid-Test Ratio.

#### Disadvantages of using the Quick Ratio QUR

A thing to remember when using the QUR model is that it ignores timing of both cash received and cash paid out.

Let's assume a company with no bills due today, but it has a lot of liabilities that are due tomorrow. The company also owns a lot of inventory (part of its current assets). However the inventory cannot be easily converted into cash.  It takes some time to sell it.  This company may show a good quick ratio but can not be considered as having a good liquidity.

#### Alternative calculation

Current Assets - Inventories
Quick Ratio = ---------------------------------
Current Liabilities

#### Is there any other ratio related to this metric?

Yes, financial practice know many other ratios, for example the following:

Free Cash Flow (FCF),

Cash Asset Ratio (CAR),

Capital Adequacy Ratio (CAR),

Current Ratio (CuR),

Return On Assets (ROA),

Return on Investment (ROI),

or the Return On Equity (ROE).

.

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