Quick Ratio
Categories: Accounting, Financial Theory, Banking
"Quick! How liquid are we?"
The quick ratio is a measure of how well (or not-so-well) a company is positioned to be able to quickly pay off its debts. The ratio looks like this:
(Cash + sellable securities + money people owe the company) / (liabilities)
So basically, it compares your total liquid assets to how much you owe. It's important to note that you don't count your current inventory as part of your assets, as it's typically hard to sell everything you have right this moment.
The higher the quick ratio, the healthier the liquidity position.