Quick Ratio

The quick ratio is a liquidity metric that measures a company's ability to meet its short-term obligations using its most liquid assets, excluding inventory. It is calculated by dividing the sum of cash, short-term investments, and receivables by current liabilities. A quick ratio above 1.0 generally indicates the company can cover its short-term liabilities without relying on selling inventory.

If a company has $500,000 in cash, $200,000 in receivables, and $600,000 in current liabilities, its quick ratio is 1.17, suggesting it is in a reasonably healthy liquidity position. Traders using fundamental analysis compare quick ratios across companies in the same sector to identify which businesses are better positioned to handle short-term financial pressures. A declining quick ratio over several quarters may be a warning sign of tightening liquidity, which could impact the company's stock negatively.