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Quick Ratio

Provided by the International Finance Corporation


This is a very similar ratio to the current ratio. The difference is that stocks or inventories are deducted from the current assets figure. This provides a clearer measure of whether a business has the cash or near cash assets to pay debts and borrowings falling due in the short term. It is often referred to as a measure of a business’s liquidity (cash being called a liquid asset).

A ratio of around 1.25:1 is usually considered acceptable. A lower ratio can be a sign of cash flow problems which can quickly lead to serious problems. Banks and potential investors are very interested in this ratio and will want to track it over time to make sure that a single healthy ratio was not a lucky coincidence.

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2121 Pennsylvania Avenue, N.W., Washington, D.C. 20433, www.ifc.org

The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law.  IFC does not guarantee the accuracy, reliability or completeness of the content included in this work, or for the conclusions or judgments described herein, and accepts no responsibility or  liability for any omissions or errors (including, without limitation, typographical errors and technical errors) in the content whatsoever or for reliance thereon.

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