The quick ratio is a stricter version of the current ratio. Where the current ratio includes all current assets (including inventory), the quick ratio strips out inventory and other assets that can't be converted to cash quickly. What's left are the "quick assets" — cash, short-term investments, and accounts receivable — compared against current liabilities.
What the number means
A quick ratio above 1.0 means you have more liquid assets than immediate obligations — you could theoretically cover all current liabilities without selling anything. Below 1.0 means you're dependent on inventory sales or additional financing to meet near-term obligations. For most service businesses with no inventory, the quick ratio and current ratio are nearly identical.
When lenders look at it
Banks and SBA lenders look at quick ratio when evaluating creditworthiness. A quick ratio below 0.5 will raise questions about liquidity. A ratio consistently above 1.5 suggests strong financial health and good cash management. If you're applying for a line of credit or a term loan, knowing your quick ratio in advance tells you how the underwriter will likely see your business.
Quick ratio vs. working capital
Working capital is an absolute number (current assets minus current liabilities). The quick ratio is a proportion. Both measure short-term financial health, but the ratio makes it easier to compare your position over time or against benchmarks — a business with $50,000 in working capital means something very different at $200,000 in revenue versus $2 million.
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