Current ratio vs quick ratio
Each, defined
Current ratio
Current ratio is a liquidity and working-capital metric, calculated as Current assets ÷ Current liabilities. > 1 means current assets cover current liabilities — liquidity, not solvency or health.
Formula: Current assets ÷ Current liabilities
Quick ratio
Quick ratio is a liquidity and working-capital metric, calculated as (Cash and equivalents + Short-term investments + Accounts receivable) ÷ Current liabilities. The acid test. The shortcut (Current assets − Inventory − Prepaids) ÷ Current liabilities keeps other current assets in and reads higher — state which.
Formula: (Cash and equivalents + Short-term investments + Accounts receivable) ÷ Current liabilities
Side by side
| Current ratio | Quick ratio | |
|---|---|---|
| Numerator | All current assets | Cash, short-term investments, receivables |
| Inventory and prepaids | Included | Excluded |
| Strictness | Looser | Stricter (acid test) |
Northwind's liquidity, two ways
Northwind closes September 2026 with $48,500 of current assets against $9,450 of current liabilities: a current ratio of 5.13. Leave out $1,000 of inventory and $6,600 of prepaid insurance and the quick ratio is 4.33. (Northwind Traders, Inc., September 2026, accrual basis, USD.)
| Line | Current ratio counts | Quick ratio counts |
|---|---|---|
| Cash | 32,900.00 | 32,900.00 |
| Accounts receivable | 8,000.00 | 8,000.00 |
| Inventory | 1,000.00 | — |
| Prepaid insurance | 6,600.00 | — |
| Assets counted | 48,500.00 | 40,900.00 |
| Current liabilities | 9,450.00 | 9,450.00 |
| Ratio | 5.13 | 4.33 |
How they relate
Both ask whether the company can meet its short-term obligations. The quick ratio is the stricter test: it counts only assets that are cash or close to it.
The gap between them is inventory and prepaids. A distributor with a warehouse full of stock can have a healthy current ratio and a thin quick ratio, and it is the quick ratio that says whether payroll clears if sales stall.
Questions
- What is a good current ratio?
- Above 1.0 means current assets cover current liabilities. What is healthy depends on the business: software companies with deferred revenue can run below 1 comfortably.
- Is the quick ratio the acid test?
- The quick ratio is also called the acid-test ratio.
See it computed
Worked through: the calculators, the journal entries and the tools that use these terms.
- Current ratio calculatorCurrent ratio is a liquidity and working-capital metric, calculated as Current assets ÷ Current liabilities.Calculator
- Quick ratio calculatorQuick ratio is a liquidity and working-capital metric, calculated as (Cash and equivalents + Short-term investments + Accounts receivable) ÷ Current liabilities.Calculator
Definitions are the glossary’s, generated from the same documents. Figures in the examples are computed by tested functions, not typed. General information for US companies under US GAAP, not accounting or tax advice.