Quick Ratio

A financial metric that assesses a company’s short-term liquidity and ability to cover immediate financial obligations without relying on the sale of inventory. Also known as the Acid-Test Ratio.

 

Liquidity:

The ease with which assets can be converted into cash without significantly affecting their market value. A higher quick ratio indicates better liquidity.

 

Current Assets:

Assets that are expected to be converted into cash or used up within one year, including cash, accounts receivable, and short-term investments.

 

Acid-Test Ratio:

Another term for the Quick Ratio, emphasizing the ability of a company to meet its short-term obligations without relying on the sale of inventory.

 

Accounts Receivable:

The amount of money owed to a company by its customers for goods or services provided on credit. It is considered a current asset.

Working Capital:

The difference between a company’s current assets and current liabilities. Positive working capital indicates the company has more assets than liabilities in the short term.

Financial Health:

A qualitative assessment of a company’s ability to meet its financial obligations, including its short-term liabilities. The quick ratio is a key indicator of financial health.

 

Cash Flow:

The movement of money in and out of a business. Maintaining a positive cash flow is crucial for meeting short-term obligations and sustaining operations.

 

Creditworthiness:

An assessment of a company’s ability to honor its financial commitments, influencing its ability to secure loans or favorable credit terms.

 

Liquid Assets:

Assets that can be quickly converted into cash or cash equivalents. Liquid assets are a vital component in calculating the quick ratio.

Debt Repayment:

The process of settling financial obligations, including short-term debts. A higher quick ratio implies a company has better capacity for debt repayment.

 

Financial Flexibility:

The ability of a company to adapt to changing financial conditions and meet unexpected expenses without compromising its operations.