About the Quick Ratio (Acid-Test)
Quick Ratio (Acid-Test) is a free financial statement calculator for liquidity analysis. The quick ratio excludes less liquid inventory and prepayments. A value of 1.0 means selected near-cash assets equal current liabilities. Enter values from the source reports shown alongside each field and receive a calculated figure with contextual interpretation. The tool operates locally in your browser.
Formula or method
Formula: (Current assets − Inventory − Prepaid expenses) ÷ Current liabilities. Find the required amounts on the reporting company’s Balance Sheet, Income Statement, Cash Flow Statement or supporting notes. Beginning and ending balance sheet amounts should cover the same period as the income statement numbers. Current assets (Balance Sheet): Total current assets—cash, receivables, inventory and other assets expected to turn into cash or be consumed within about one year. Inventory (Balance Sheet): The stock of goods or materials held at the reporting date. Use the inventory asset, not cost of sales from the Income Statement. Prepaid expenses (Balance Sheet): Payments for future benefits (for example prepaid insurance) in current assets. Some companies present them under Other current assets. Current liabilities (Balance Sheet): Total current liabilities—trade payables, short-term borrowings and other obligations generally due within 12 months.
Worked example
Illustrative example inputs: Current assets = 120,000; Inventory = 30,000; Prepaid expenses = 5,000; Current liabilities = 60,000. Replace these sample figures with values from your financial statements to see the calculation. Use consistent units and period lengths; numbers in thousands and millions cannot be combined without conversion.
How to use the tool
- Locate the named accounts on the financial statements and read the accompanying footnotes.
- Enter each amount using one currency, scale and consistent reporting dates or reporting period.
- Read the value together with its low, high and negative interpretation. Compare with past years and industry peers.
Common uses
Financial statement review, small business monitoring, credit analysis, investor education.
Assumptions and limitations
Negative quick assets generally indicate incorrect classifications; with no current liabilities the ratio is undefined. Below 1.0 implies the selected liquid assets do not cover all current liabilities without relying on inventory, financing or future cash inflows. A higher figure generally indicates more near-term coverage; verify collection of receivables and restrictions on cash. Never decide whether a business is healthy from a single ratio alone. Sector norms, revenue recognition, reporting periods, one-time items and the cash-flow statement all matter.
Frequently asked questions
What does a quick ratio (acid-test) result mean?
The quick ratio excludes less liquid inventory and prepayments. A value of 1.0 means selected near-cash assets equal current liabilities. Below 1.0 implies the selected liquid assets do not cover all current liabilities without relying on inventory, financing or future cash inflows. A higher figure generally indicates more near-term coverage; verify collection of receivables and restrictions on cash. If a denominator is zero, or book equity is nonpositive for ratios that depend on it, treat the result as undefined rather than zero.
Where to find the numbers on your financial statements
Use amounts from the same business, in the same currency and reporting period. Balance Sheet figures are amounts at particular dates; Income Statement and Cash Flow Statement figures cover a period.
Current assets
Source: Balance Sheet
Total current assets—cash, receivables, inventory and other assets expected to turn into cash or be consumed within about one year.
Inventory
Source: Balance Sheet
The stock of goods or materials held at the reporting date. Use the inventory asset, not cost of sales from the Income Statement.
Prepaid expenses
Source: Balance Sheet
Payments for future benefits (for example prepaid insurance) in current assets. Some companies present them under Other current assets.
Current liabilities
Source: Balance Sheet
Total current liabilities—trade payables, short-term borrowings and other obligations generally due within 12 months.
What does the ratio tell you?
The quick ratio excludes less liquid inventory and prepayments. A value of 1.0 means selected near-cash assets equal current liabilities.
How to read a lower result
Below 1.0 implies the selected liquid assets do not cover all current liabilities without relying on inventory, financing or future cash inflows.
How to read a higher result
A higher figure generally indicates more near-term coverage; verify collection of receivables and restrictions on cash.
What if the ratio is negative, zero or undefined?
Negative quick assets generally indicate incorrect classifications; with no current liabilities the ratio is undefined. A zero denominator is mathematically undefined. Assess profitability, cash generation and balance-sheet quality together.
Calculate the ratio using the formula
(Current assets − Inventory − Prepaid expenses) ÷ Current liabilities
Privacy and support
Your inputs are processed locally in your browser. ToolMosaic does not upload or store the values you enter in this tool. Our tools are free, and we appreciate your support.