# Quick Ratio Definition

- Last Updated: June 8, 2020

## Define Quick Ratio In Simple Terms

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The Quick Ratio is a measure of a company’s ability to pay its short-term debts with its most liquid **assets.**

The quick ratio is calculated by taking the sum of a company’s cash, cash equivalents, marketable securities, and accounts receivable, and dividing by the sum of its current liabilities.

## Quick Ratio Formula

Where:

1.) **C&CE** is cash and cash equivalents

2) **MS** is marketable securities

3.) **AR** is accounts receivable.

## Quick Ratio Example

For example, say that a company has cash and cash equivalents of $5 million, marketable securities worth $3 million, and another $2 million in accounts receivable for a total of $10 million in highly liquid assets.

If the company has $5 million in current liabilities, then its quick ratio is 2.0.

Higher ratios always indicate greater

**liquidity**.However, the quick ratio alone does not give the full picture of a company’s financial health and should be considered alongside other metrics, such as the earnings-per-share or rate-of-return on investments.