The quick ratio is a liquidity ratio used to measure the liquidity position of a company, project, investment centre or profit centre. The quick ratio differs from other liquidity ratios in that it only considers cash and cash equivalent items for calculation and interpretation.  


Quick Ratio

Current Asset 




Current Liabilities  

Prepaid Expense 

Disadvantage of Quick Ratio 

Ann Katowich

Not Enough To Make A Conclusion 

Even if this ratio is favourable, it is insufficient to draw a conclusion about the company's financial health. Although the ratio is low, it does not imply that the company is about to go out of business. They may be able to support their activity with funds from other sources.

Hard To compare 

It's pointless to compare the ratios across different industries. Some businesses necessitate a large amount of current assets, while others do not. As a result, comparing the ratio will yield no results.

Exclude Inventory May Not Suitable For Some Businesses 

For the retail store and dinner market, the merchandise will be converted to cash quickly and efficiently. As a result, omitting them from the ratio will not provide a complete picture of such businesses.

Not Provide Anything Related To Company Cash Flow 

This ratio examines the company's ability to create cash to cover current liabilities, but it contains no information about cash flow generation.

Other Current Assets May Be Hard To Convert To Cash 

Other current assets, such as inventories, may also take longer to convert to cash. Accounts receivable, for example, will be difficult to recover during a slump.