Current ratio<\/strong><\/td>Quick ratio<\/strong><\/td><\/tr>| The current ratio measures the ability of a company to pay off its short-term liabilities through its short-term assets, including cash, inventory, and receivables. <\/td> | The quick ratio also measures the company\u2019s ability to cover its short-term liabilities, but it does not consider inventory. <\/td><\/tr> | The current ratio of a company is calculated by dividing current assets by the current liabilities of a company, i.e.
Current ratio = Current assets \/ Current liabilities<\/strong><\/td>The quick ratio of a company is calculated by totalling the amount of cash, accounts receivable, and marketable securities and then dividing the sum by the total current liabilities, i.e.
Quick ratio = Accounts receivable + Cash & cash equivalents + Marketable securities \/ Total current liabilities<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<\/span>Conclusion<\/strong><\/span><\/h2>\n\n\n\nThe quick ratio measures a company’s ability to pay off its current liabilities by converting its liquid assets into cash. The ratio excludes inventory as it is not easily convertible into cash. A quick ratio of 1:1 and above is a positive sign in terms of a company\u2019s ability to pay off its current liabilities. However, a negative or a quick ratio below 1 can be a red flag. While the quick ratio measures liquidity, the assessment depends on multiple factors and might not always be accurate.<\/p>\n\n\n\n <\/span>FAQs<\/strong><\/span><\/h2>\n\n\n\n | | | |