Quick ratio (acid test)

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

The quick ratio, or acid test, is current assets less inventory divided by current liabilities: whether cash, receivables and other liquid assets could meet the debts due within a year without selling any stock. Some versions also leave out prepaid expenses. A business with US$9m of current assets, US$4m of it stock, and US$6m of current liabilities has a current ratio of 1.5 times but a quick ratio of about 0.83 times. A lender reads the gap between the two as the part of apparent liquidity that depends on stock being sold, which weighs most where stock is slow, seasonal or specialised.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.