The Quick (or Acid) Ratio (v6110.00) is a liquidity ratio that measures the ability of the company to pay off short-term obligations from its most liquid assets. Calculated as follows:
(v2000.00) + (v2017.00) + (v2035.00)
(v2017.00) Total Marketable Securities
(v2035.00) Net Account Receivables
(v2600.00) Total Current Liabilities
A low Quick Ratio (v6110.00) does not necessarily indicate that a company is in difficulty. First, this ratio ignores the company's reserve borrowing power (such as lines of credit) that are not recorded but can be used to meet short-term obligations.
Second, rapid sales growth usually increases the required working capital investment and can distort the Quick Ratio (v6110.00). For example, a rapid increase in Inventory (v2040) (not included in the numerator) funded by Accounts Payable (v2520), which is included in the denominator, causes a sudden Quick Ratio (v6110.00) decline.