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Quick ratio

Cash, short-term investments and receivables divided by current liabilities; the current ratio with inventory removed.

Inventory is the current asset most likely to be worth less than its carrying value when cash is urgently needed, so removing it gives a harsher and often more honest picture of near-term solvency.

For a business with a fast days-inventory-outstanding, the gap between current and quick ratio is small and the distinction hardly matters. For one holding six months of stock, the gap is the entire story.

Example: Northwind Tools has $570M of current assets less $265M of inventory, so $305M against $310M of current liabilities: a quick ratio of 0.98, materially tighter than the 1.8 current ratio.

Related: current-ratio, cash-ratio, inventory, accounts-receivable, days-inventory-outstanding

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