Accounting Dictionary

Quick Ratio

The Quick Ratio is the total of cash, Accounts Receivable, and short term investments divided by current Liabilities.

Before banks grant a loan they want to know if a company has assets that can be converted into cash within days. They want to know if the company can repay the bank loan or if they can’t, does the company have enough really short term assets the bank can seize to get their money back. The Quick Ratio is also called the Acid Test Ratio.

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