Quick Ratio Concept

Quick Ratio (or Reduced Liquidity ratio) is a financial indicator that seeks to measure the capacity of a company to pay its short term debts without having to depend on the existences sales or the receipts of clients and other debtors.

Its calculation is made by the division of the current assets subtracted from the existences in stock by the total liabilities with short term eligibility. Therefore, calculating a quick ratio with a value superior of 1 means that the company has capacity to honor its short term financial commitments even without being dependant on the sales of existences.