What is the quick ratio also known as?

The quick ratio is commonly referred to as the acid-test ratio. This measurement assesses a company's ability to meet its short-term obligations using its most liquid assets, which exclude inventory. Unlike the current ratio, which takes into account all current assets, the quick ratio focuses specifically on assets that can quickly be converted into cash.

The term "acid-test" reflects a stringent measure of liquidity, indicating how well a company can cover its current liabilities without relying on the sale of inventory. For instance, if a company faces immediate financial pressures, it can rely on cash, marketable securities, and receivables, which are considered in the quick ratio calculation.

Understanding and using the quick ratio is crucial for stakeholders, particularly creditors and investors, as it provides an insight into the company's short-term financial health and operational efficiency. It is a more conservative measure compared to the current ratio, hence its importance in financial analysis.