This quick ratio calculator estimates the short-term liquidity of a company, which in other words represents its ability to use the quick assets to pay its current liabilities. There is more information on how to calculate this financial indicator below the form.

Cash (in hand, in bank):
Accounts receivable:
Marketable securities:
Current total liabilities:*

## How does this quick ratio calculator work?

This financial tool allows measuring the ratio of cash and other liquid assets of a company in comparison to its current liabilities, by considering the following variables:

• Cash value that represents the amount of money in hand, in bank account and checks, no matter of the currency.

• Accounts receivable which are the money the company has to receive from its customers either (physical or juridical entities) for goods or services that have been purchased.

• Marketable securities are considered liquid assets (quote similar to the cash liquidity) that can either equity or instruments such as stocks, bonds or note. They are characterized by the fact that can be easily sold on market.

• Current total liabilities meaning all the debts and obligations the company has to pay within a short term (such as a specific business cycle or fiscal year). Usually accountants consider current liabilities items such as: dividends paid to investors, accrued liabilities, unpaid taxes, short term debts or accounts payable.

The algorithm behind this quick ratio calculator is based on these equations, while providing the information presented below:

• Quick ratio = (Cash(in hand, in bank) + Accounts receivable + Marketable securities) / Current liabilities

• Total liquid assets = Cash + Marketable securities + Accounts receivable

• Percentage of the Cash in the Total liquid assets = Cash / Total liquid assets * 100

• A financial interpretation of the quick level ratio as mentioned below.

## Quick ratio definition

In accountancy this is a liquidity ratio indicator that demonstrates the ability of a company to pay off in due time its current liabilities by using its own liquid assets. Thus its standard formula is a function that depends on the quick assets that can be cash or that can be transformed in cash easily within a short-term (usually 90 days; and on current liabilities which are the due in a short time frame.

## Interpretation of the levels

Financial experts consider the following rules when interpreting the quick ratio:

• IF Quick ratio = 1  THEN that means the company can pay with its short term assets entirely its current liabilities. This is the ideal situation for an organization.

• IF Quick ratio > 1 THEN that may indicate the business can payout its current financial obligations in due time as the funds available exceeds the liabilities volume. However, that also shows the company either keeps too much cash in bank or in hand, or it has some difficulties in collecting its accounts receivable. A higher than 1 quick ratio is desirable when the entity either has difficulties on borrowing on short-term or when the cost for borrowing on short term is too high in comparison with the interest received on the funds available.

• IF Quick ratio < 1 THEN this may demonstrate the business either relies excessively on inventory or on other assets to pay its current short-term liabilities which is a risky strategy as it may lead to some difficulties overtime.

## Example of a calculation

Let's take the example of a company with these characteristis:

- Cash = \$100,000

- Accounts receivable = \$50,000

- Marketable securities = \$120,000

- Current total liabilities = \$270,000

Quick ratio: 1.00

As the quick ratio value is 1, that means the company with its short term assets can pay entirely its current liabilities.

Total liquid assets: \$270,000.00

Percentage of the Cash in the Total liquid assets: 37.04%

14 Feb, 2015