Definition: Quick Ratio is a model for measuring the liquidity of a company. It is calculated by taking all assets which are quickly convertible into cash, and to divide the result by all current liabilities. It specifically excludes inventory.
Also called: Acid Test Ratio.
The QR is an indicator of the extent to which a company can pay current liabilities without having to rely on the sale of inventory.
Typically, a QR of 1:1 or higher is good, and indicates a company does not have to rely on the sale of inventory to pay the bills.
Another ratio to calculate the liquidity of a firm is the Current Ratio.
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