The quick ratio is similar to the current ratio, but it provides a more conservative assessment of the liquidity position of a firm as it excludes inventory,[1] which it does not consider as sufficiently liquid.
For example, if a business has large amounts in accounts receivable due for payment after a long period, while also having larger accounts payable due for immediate payment, the quick ratio may look healthy when the business is actually about to run out of cash.
In contrast, if a business has fast payment from customers, but long terms from suppliers, it may have a low quick ratio and yet be very healthy.
Generally, the acid test ratio should be 1:1 or higher for a healthy company.
[2] In general, the higher the ratio, the greater the company's accounting liquidity.