quick ratio

Definition

Current assets minus inventory divided by current liabilities—also called the 'acid test' because it measures whether you can pay bills without selling inventory. It's liquidity measurement for pessimists who assume everything in the warehouse is unsellable.

Example Usage

The quick ratio of 0.5 meant the company couldn't cover its short-term debts unless those 10,000 fidget spinners suddenly became valuable again.

Origin

Developed in the early 20th century as a more conservative alternative to the current ratio.

Fun Fact

Called the 'acid test' from gold rush assayers who used nitric acid to distinguish real gold from fool's gold—equally relevant for distinguishing real liquidity from illusions.

Source: Financial ratio analysis terminology

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