What the quick ratio means

Current Ratio treats every current asset as equally able to cover a bill — but inventory is the least liquid one. It has to actually be sold, and sold at the expected price, before it turns into cash. Quick Ratio (also called the acid-test ratio) strips inventory out entirely, leaving only the current assets a company could realistically convert to cash quickly: cash itself, receivables, and short-term investments.

The formula

Quick Ratio = (Current Assets − Inventory) / Current Liabilities

Worked example: Desi Bites Foods, FY25

  ₹ Lakh
Current Assets − Inventory 479
Current Liabilities 267
Quick Ratio 1.79

Worked example: Britannia Industries, FY25

From Britannia Industries’ audited consolidated FY25 results (year ended 31 March 2025, filed 8 May 2025). For illustration only.

  ₹ Crore
Current Assets − Inventory 2677.17
Current Liabilities 3618.26
Quick Ratio 0.74

Strip out inventory, and Britannia’s coverage looks tighter still — 0.74, below 1. On paper, that’s the kind of number that would normally deserve real scrutiny at most companies. For Britannia specifically, it’s a case where the number needs company: paired with its 20-day-faster collection cycle than payment cycle (negative CCC), a sub-1 quick ratio isn’t the same warning sign it would be at a company that actually waits on customers to pay before it can pay its own bills. That said — this is genuinely the exception, not the rule. For most companies, a quick ratio comfortably under 1 is worth investigating, not explaining away.

Common mistakes

  • Treating a sub-1 quick ratio as automatically a problem, or automatically fine. Neither extreme is right. It’s a real signal that deserves a look at why — and Britannia’s negative CCC is a legitimate why, but it’s not the default explanation for every company that shows up this way.
  • Using inconsistent definitions of “quick” assets. Some versions of this ratio also strip out prepaid expenses; this series keeps it simple (current assets minus inventory only) for consistency across posts — worth checking which version a given source is using before comparing numbers across sites.
  • Comparing quick ratios across industries with very different inventory intensity. A software company (almost no inventory) will show a quick ratio close to its current ratio by default — the gap between the two ratios matters more than either number alone.
  • Ignoring the trend. A quick ratio steadily declining over several years, even if still technically above 1, is worth more attention than a single low reading at an otherwise fast-cycling business.

Takeaway: quick ratio is the stricter cousin of current ratio, showing coverage without leaning on inventory — a low number is usually worth investigating, but as Britannia shows, it has to be read alongside the company’s actual cash conversion cycle before jumping to a conclusion.