Current Ratio vs Quick Ratio (Acid-Test Ratio)
Current assets divided by current liabilities - short-term liquidity. Current assets minus inventory, divided by current liabilities.
What is the difference between Current Ratio and Quick Ratio (Acid-Test Ratio)?
The quick ratio is the current ratio with inventory removed from the top. Inventory is the least liquid current asset.
| Current Ratio | Quick Ratio (Acid-Test Ratio) | |
|---|---|---|
| In one line | Current assets divided by current liabilities - short-term liquidity. | Current assets minus inventory, divided by current liabilities. |
| Example | $4M current assets / $2M current liabilities = a current ratio of 2.0. | $4M current assets including $1.5M inventory, $2M current liabilities: ($4M - $1.5M) / $2M = 1.25. |
| Unit | Economics & Financial Reporting | Economics & Financial Reporting |
| Series 65 | Section 1: Economics & Business | Section 1: Economics & Business |
What is Current Ratio?
Measures whether a company can meet obligations due within a year. Above 1.0 means current assets exceed current liabilities. Too high can signal idle cash or excess inventory.
What is Quick Ratio (Acid-Test Ratio)?
A stricter liquidity test than the current ratio, because it excludes inventory, which may not sell quickly or at full value. Always lower than or equal to the current ratio.