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Definition of 'Quick Ratio'
An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. The quick ratio is calculated as:

Also known as the "acid-test ratio" or the "quick assets ratio".

Investopedia explains 'Quick Ratio'
The quick ratio is more conservative than the current ratio, a more well-known liquidity measure, because it excludes inventory from current assets. Inventory is excluded because some companies have difficulty turning their inventory into cash. In the event that short-term obligations need to be paid off immediately, there are situations in which the current ratio would overestimate a company's short-term financial strength.

Definition of 'Current Ratio'
A liquidity ratio that measures a company's ability to pay short-term obligations. The Current Ratio formula is:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

Investopedia explains 'Current Ratio'
The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry. This ratio is similar to the acid-test ratio except that the acid-test ratio does not include inventory and prepaids as assets that can be liquidated. The components of current ratio (current assets and current liabilities) can be used to derive working capital (difference between current assets and current liabilities). Working capital is frequently used to derive the working capital ratio, which is working capital as a ratio of sales.

Related Definitions
Acid-Test Ratio
A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous ...

Current Liabilities
A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued ...

Current Assets
1. A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets ...

Working Capital
A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as: Positive working capital means that the company is able to pay ...

Inventory Turnover
A ratio showing how many times a company's inventory is sold and replaced over a period. the The days in the period can then be divided by the inventory turnover formula to calculate the ...

Definition of 'Debt Ratio'
A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load.

Investopedia explains 'Debt Ratio' A debt ratio of greater than 1 indicates that a company has more debt than assets, meanwhile, a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. efinition of 'Receivables Turnover Ratio'
An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. Formula:

Some companies' reports will only show sales - this can affect the ratio depending on the

size of cash sales.

Investopedia explains 'Receivables Turnover Ratio'
By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm.

Definition of 'Turnover'
1. In accounting, the number of times an asset is replaced during a financial period. 2. The number of shares traded for a period as a percentage of the total shares in a portfolio or of an exchange.

Investopedia ex

1. In accounting, turnover oft

2. In a portfolio, a small turn

numerous trades solely in ord

Related Definitions
Accounts Receivable - AR
Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come ... Read More »

1. A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit. 2. A balance sheet item ... Read More »

1. An unethical practice employed by some brokers to increase their commissions by excessively trading in a client's account. This practice violates the NASD Fair Practice Rules. It is ... Read More »

Asset Turnover
The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars.Formula: Also known as the Asset Turnover Ratio. Read More »

Inventory Turnover
A ratio showing how many times a company's inventory is sold and replaced over a period. the The days in the period can then be divided by the inventory turnover formula to calculate the

Definition of 'Inventory Turnover'
A ratio showing how many times a company's inventory is sold and replaced over a period. the

The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days".

Investopedia explains 'Inventory Turnover'
Although the first calculation is more frequently used, COGS (cost of goods sold) may be substituted because sales are recorded at market value, while inventories are usually recorded at cost. Also, average inventory may be used instead of the ending inventory level to minimize seasonal factors. This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.
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