Quick ratio

Current assets excluding inventory, divided by current liabilities. It describes the position if stock cannot be sold quickly.

Example

Northgate's 835,000 of current assets excluding inventory over 600,000 of current liabilities is 1.39, against a current ratio of 2.73.

Important

The gap between the current and quick ratios is inventory. A large gap means the reassuring number depends on selling stock, which is the thing that stops happening in a downturn.

Related terms

• Current ratio — Current assets divided by current liabilities - a rough measure of whether a business can meet what falls due within the next year out of what it expects to turn into cash in the same period.
• Inventory — Goods a business has bought or made and has not yet sold - raw materials, work in progress and finished stock.
• Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.

Lessons that explain it

• The balance sheet: what it owns and what it owes — A photograph taken on one specific day, showing what the business has, who has a claim on it, and what is left over for the owners. It is the statement that tells you whether a bad year is survivable. (13 min)

All 578 terms in the Investing glossary