Quick ratio
The current ratio with inventory removed, because inventory may not sell.
It is the liquidity test that survives a business whose stock has stopped moving.
How it is computed here
(Current assets - inventory) / current liabilities
Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it. Filed under health. Higher is the stronger reading, other things equal.
The readings, and where the lines come from
| Range | Reading |
|---|---|
| below 0.70 | Thin |
| 0.70 to 1.00 | Tight |
| 1.00 to 1.50 | Adequate |
| 1.50 and above | Strong |
A practitioners’ convention, not an estimated boundary. Convention rather than an estimated boundary; 1.0 is the arithmetic point at which liquid assets match short-term liabilities.
When it misleads
- Still counts receivables at face value, and receivables from a struggling customer are worth less than that.
- Same structural exception for retailers as the current ratio.
Not meaningful for banks, insurers: the product prints n/m with the reason rather than a number for them.
Questions
How is quick ratio calculated?
(Current assets - inventory) / current liabilities. Combines more than one basis. See the note. The pipeline prefers the data vendor's published trailing-twelve-month ratio when one exists, and falls back to recomputing from the latest filed fiscal year when it does not. Those two are different measurements: the vendor figure puts twelve months of flow over the most recent quarterly balance sheet. The source trail on each figure names which path produced it.
What does quick ratio tell a value investor?
It is the liquidity test that survives a business whose stock has stopped moving.
When does quick ratio mislead?
Still counts receivables at face value, and receivables from a struggling customer are worth less than that. Same structural exception for retailers as the current ratio.