Financial Encyclopedia
Quick Ratio
Definition
Quick Ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. Liquid assets are assets that can be converted quickly to cash.
More detailed
This ratio is calculated by dividing company's most liquid assets (cash, cash equivalents, marketable securities, accounts receivables by total current liabilities).
Quick Ratio = (Cash & Cash equivalents + Marketable securities + Accounts receivable) / Current liabilities
The higher the value of the quick liquidity ratio, the better the financial position of the company. The optimal value is considered to be 1.0 or higher. However, the value may differ for different industries.
If the coefficient value is less than 1, liquid assets do not cover short-term liabilities, which means that there is a risk of loss of solvency, which is a negative signal for investors.
According to Ranks methodology, this indicator is analyzed in the Financial position block and used along with other indicators to calculate the score.
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