Definition for : Quick ratio

The quick ratio is one of the Liquidity ratios. It is the same as the Current ratio, except that Inventories are excluded from the calculation. This exclusion recognises that a portion of Inventories corresponds to the minimum the company requires for its ongoing activity. Some inventory items have Value only to the extent they are used in the Production process. This ratio is calculated by dividing Current assets (less than one year) excluding Inventories by Current liabilities (due in less than one year). Also called Acid test ratio.

(See Chapter 12 Financing of the Vernimmen)

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