2 min read
Definition
The quick ratio, or acid test, divides liquid assets (cash and money owed to you, but not stock) by current liabilities. Excluding stock makes it a tougher test than the current ratio of whether a business can meet short-term obligations without selling inventory.
Why it matters
A quick ratio around 1 or above suggests the business can cover its short-term debts from readily available assets — a sign of the liquidity that supports affordability. See working capital.
Related reading
Working capital
The money a business has tied up in day-to-day operations — current assets minus current liabilities — and…
Read →
Business loan affordability: what lenders check and how to pass
Affordability is the single biggest thing standing between your company and a yes. A lender is not asking…
Read →
Free cash flow
The cash a business generates after operating costs and essential outgoings — the money genuinely available…
Read →Solvency
A company's ability to meet its debts as they fall due, and to hold assets greater than its liabilities — a…
Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.