### Quick Ratio / Acid Test

The **Quick Ratio**, also known as the **Acid Test Ratio**, is a financial indicator that, like the Current Ratio, **analyzes a company's ability to pay its short-term obligations**. The main difference between the Current Ratio and the Quick Ratio is that the latter evaluates a company's liquidity from a more conservative standpoint, as it excludes inventories from the calculation. The Quick Ratio is calculated by dividing liquid assets (cash, accounts receivable, short-term investments) by current liabilities. Within these liquid assets, inventories are not included as they can be more difficult to convert to cash compared to other assets. The Quick Ratio formula is:

*Quick Ratio = Liquid Assets / Current Liabilities *

The Quick Ratio result represents the company's ability to pay its short-term debts using only the most liquid assets. Therefore, **a high Quick Ratio** (greater than 1) shows that the company has sufficient capacity to meet its short-term obligations without relying heavily on inventory sales.

It is important to note that although the Quick Ratio does not provide a complete picture of a company's financial health, it is a more rigorous indicator of a company's liquidity than the Current Ratio because it excludes inventories, which is a less liquid asset.