The quick ratio is a formula used in business to identify the ability of a business to pay its current liabilities. It is also known as the ‘Acid Test’ formula (ratio). In the large markets this formula is one of the financial industry ratios used to value the stock of a corporation. In the arena of the small business, you should only use this ratio as a means to gauge ability to pay your bills right now.
The acid test is used with gold to determine if the presented material is real. In the business world, it is also known as ‘Quick Ratio’ when referring to the legitimacy of the cash on the balance sheet. The formula is simply: (Current Assets less Inventory)/Current Liabilities.