The quick ratio is another calculation used to measure liquidity and is similar to the current ratio but with more limited definitions of assets and liabilities.
Your quick ration will probably be less than your current ratio because the numerator of the calculation excludes items such as inventory and receivables that are not expected to be paid soon. A quick ratio of greater than 2 is usually considered good, but if the collection period of your accounts receivable stretches longer than your payment period for payables, you should be cautious. By monitoring changes in your quick ratio over time, you can better understand the financial dynamics of your business and run it more effectively. Here is a worksheet you can use to track changes in this and other important measures. |