The quick ratio, also called the acid-test ratio, measures a company's ability to meet its short-term obligations using only its most liquid assets - those that can be converted to cash within 90 days or less. Unlike the current ratio, the quick ratio excludes inventory and prepaid expenses from the numerator, both of which may take significant time to convert to cash or may not be convertible at all.
This makes the quick ratio a more conservative and arguably more realistic test of whether a company can actually pay its bills in a crunch. If a company suddenly needed to cover all its current liabilities, it could not instantly liquidate its warehouse full of raw materials or its prepaid insurance policies. The quick ratio strips those out and looks only at cash, cash equivalents, and receivables.
A quick ratio above 1.0 means the company can cover all short-term liabilities without selling any inventory or relying on prepaid assets. A ratio significantly below 1.0 is worth investigating, though it is not automatically a red flag - businesses with high inventory turnover, like grocery stores, may comfortably operate with low quick ratios because they convert inventory to cash very rapidly.
The quick ratio is most valuable during economic downturns or periods of financial stress, when inventory values can decline sharply and receivables may become harder to collect. In stable times, the current ratio and quick ratio tell similar stories; in stressed environments, the gap between them becomes informative.
Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities
The textbook rule is that a quick ratio of 1.0 or higher is adequate. In practice, about 38% of US companies with a market capitalization above $2 billion run below 1.0. Among those 1,333 companies, the median quick ratio is 1.19 and the middle half fall between 0.79 and 2.04.
| Industry | Median | Middle 50% |
|---|---|---|
| Retail | 0.52 | 0.31 – 1.02 |
| Food & beverage | 0.76 | 0.54 – 1.36 |
| Utilities | 0.81 | 0.58 – 1.04 |
| Oil & gas | 1.03 | 0.65 – 1.55 |
| Transportation | 1.03 | 0.71 – 1.51 |
| Insurance | 1.15 | 1.05 – 1.46 |
| Industrial manufacturing | 1.23 | 0.94 – 2.29 |
| Telecom & media | 1.31 | 0.81 – 1.89 |
| Software & IT services | 1.50 | 0.96 – 2.37 |
| Semiconductors & hardware | 1.75 | 1.01 – 2.81 |
| Medical devices | 2.20 | 1.21 – 4.45 |
| Pharma & biotech | 5.86 | 2.57 – 13.01 |
Retailers and food and beverage companies sit lowest because so much of their current assets is inventory, which the quick ratio excludes, and because they sell for cash and pay suppliers later. For those businesses a quick ratio well under 1.0 is the normal operating shape. Companies that hold little inventory, such as software and medical device makers, sit well above it.
Read the quick ratio next to the current ratio: a wide gap between them means the company's liquidity depends on selling inventory, which matters most when demand slows. Figures are GeminIQ calculations across US companies that file with the SEC, using each company's latest reported period as of September 2026. The middle 50% runs from the 25th to the 75th percentile. The industry table groups companies by SIC code and includes those above $300 million in market capitalization.
GeminIQ subtracts both Inventory and Prepaid Expenses from Current Assets before dividing by Current Liabilities. All three inputs are sourced directly from the company's SEC filing via their XBRL tags.
Some platforms only subtract inventory and not prepaid expenses, which produces a slightly higher and less conservative quick ratio. GeminIQ's calculation follows the stricter definition.
A: A quick ratio of 1.0 or more is the textbook benchmark, but about 38% of US companies above $2 billion in market cap run below it. The median for that group is 1.19. Retailers and food companies normally sit well under 1.0 because inventory is excluded, while software and medical device makers sit well above it.
A: Prepaid expenses - such as prepaid insurance, prepaid rent, or prepaid licenses - are classified as current assets on the balance sheet, but they cannot be converted to cash. They represent services already paid for that will be consumed over time. Subtracting them produces a more conservative and accurate picture of how much truly liquid capital the company has available to meet short-term obligations.
A: The most common reason is disagreement about what to subtract from current assets. Some platforms subtract only inventory. GeminIQ subtracts both inventory and prepaid expenses. Additionally, if a platform's data aggregator has reclassified items between current and non-current categories during normalization, both the numerator and denominator of the ratio can change.
A: A quick ratio of 1.5 means the company holds $1.50 of cash, marketable securities, and receivables for every $1.00 of liabilities due within a year, without counting on selling any inventory. That is above the median of 1.19 for US companies above $2 billion in market capitalization, a comfortable level of liquidity.
A: It depends on the business. A quick ratio of 0.75 is below the textbook 1.0 benchmark, but about 38% of US companies above $2 billion in market capitalization run below 1.0. For a retailer, whose median is about 0.5 because inventory is excluded, 0.75 is healthy; for a software company it would be unusually low.
Further Reading: What Investors Miss in SEC Filings
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