The quick ratio formula — how to measure a company's liquidity in 30 seconds

The quick ratio is calculated as current assets minus inventory, divided by short-term liabilities. A company with SEK 200 million in accounts receivable and liquid funds, SEK 50 million in inventory and SEK 150 million in short-term liabilities has a quick ratio of (200 − 50) ÷ 150 = 1,0: without selling anything from inventory, the company can pay all liabilities maturing within the next year. The rule of thumb says above 1,0 — but as usual the real interpretation is the context of the industry and the balance sheet.

The financial ratio is the pulse of the balance sheet: it measures short-term payment capacity — not profitability, not valuation. It is the first check in any crisis analysis, because liquidity is what runs out while everything else is still catching up.

The formula and why inventory is subtracted

Quick ratio = (Current assets − Inventory) ÷ Short-term liabilities

Current assets are accounts receivable, inventory and liquid funds. Short-term liabilities are accounts payable, tax liabilities, accrued costs and salary advances — everything falling due within twelve months.

Why minus inventory? Receivables can confidently be tied to invoices falling due within 30–90 days. Liquid funds are already a means of payment. But inventory must first be sold — at an uncertain time, at an uncertain price — before it turns into cash. The quick ratio thus counts what can become money *quickly*, hence the name. (Its cousin, the cash ratio, goes further and also subtracts accounts receivable — only liquid funds count.)

The worked example: two retailers

• Company A: accounts receivable SEK 80m, liquid funds SEK 40m, inventory SEK 60m, short-term liabilities SEK 150m. Quick ratio = (80 + 40 − 60) ÷ 150 = 0,4. Conventional reading: strained. But if inventory turns over eight times a year — every fourteenth day — the "slow" asset is in practice faster than the receivables.
• Company B: accounts receivable SEK 30m, liquid funds SEK 20m, inventory SEK 10m, same liabilities SEK 150m. Quick ratio = (30 + 20 − 10) ÷ 150 = 0,27. Low — but a cash-paying food company with daily cash flow intake rarely lives dangerously on this number.

The moral: the quick ratio mechanically punishes inventory-dependent business models. That makes it an excellent starting point for questions — not a finished answer.

The interpretation per industry

• Retail and food: low quick ratios (0,3–0,8) are normal — fast inventory turnover and cash sales make the balance sheet "faster" than the financial ratio suggests.
• Manufacturing and construction: inventories are heavy and project-bound; here 0,8–1,2 is a common corridor and below 0,5 raises questions.
• SaaS and services: almost no inventory, subscriptions billed in advance — quick ratios above 1,5 are common and part of the business model's financing (negative working capital is an advantage, not a source of risk).
• Banks and insurance companies: the financial ratio is meaningless — their liabilities are depositors and reserves, not accounts payable. Use capital adequacy measures instead.

Three checks before you trust the number

1. Seasonality: the balance-sheet date is a single second of the year. A company with Christmas sales can show a completely different quick ratio on 31 December than on 31 January. Read the quarterly report as it is published, not only the annual report. 2. Receivables quality: an accounts receivable that is 120 days old is closer to a loss than to an asset. The note on the age distribution of accounts receivable is the quick ratio's reality anchor. 3. Currency and interest: short-term debt at a floating interest rate becomes more expensive in a rising rate cycle — the liquidity pressure can grow even while the ratio stands still.

The quick ratio in the bigger picture

Liquidity is one of four balance-sheet voices in the AKM1 stability row: V10 (debt-to-equity ratio) captures the long-term structure, V11 (liquidity) the short-term payment capacity, and V19 (capital burn) the speed of the cash outflow. A company can be solidly financed and still collapse on cash liquidity — which is why the dimensions are measured separately. In a 15-minute review of the balance sheet, the quick ratio is minutes 9–12: after the equity ratio and net debt, before goodwill and warning signs.

The exercise: two numbers per quarter

1. Read current assets, inventory and short-term liabilities from the latest balance sheet — preferably four quarters in a row. 2. Calculate the quick ratio per quarter. Is the trend falling? 3. Compare with industry peers in the calculator — the V11 cell positions the company against the group's median and shows the distance.

Next steps

• The V11 course deepens the liquidity hierarchy: cash ratio, quick ratio, current ratio — and when each measure lies.
• Combine it with the debt-to-equity ratio guide: structure and cash are two sides of the same balance sheet.
• See the whole balance-sheet build in the portfolio builder — where V10, V11 and V19 speak together.

FAQ

What is the quick ratio formula?

Kvickkvoten räknas som (omsättningstillgångar − lager) ÷ kortfristiga skulder och mäter ett bolags kortfristiga betalningsförmåga — inte lönsamhet eller värdering. I räkneexemplet ger 200 miljoner i kundfordringar och likvida medel, 50 miljoner i lager och 150 miljoner i kortfristiga skulder en kvickkvot på (200 − 50) ÷ 150 = 1,0.

What level should the quick ratio be at?

Tumregeln säger över 1,0, men tolkningen är branschens: i detaljhandel och livsmedel är 0,3–0,8 normalt, i tillverkning och bygg är 0,8–1,2 en vanlig korridor, och SaaS-bolag ligger ofta över 1,5. För banker och försäkringsbolag är nyckeltalet meningslöst — där används kapitaltäckningsmått i stället.

Why is inventory deducted in the quick ratio?

Lager måste först säljas — till osäker tid och till osäkert pris — innan det blir kassa, medan kundfordringar förfaller inom 30–90 dagar och likvida medel redan är betalningsmedel. Kvickkvoten mäter det som kan bli pengar kvickt, därav namnet — men som Bolag A i exemplet visar (kvickkvot 0,4 med lageromsättning åtta gånger per år) måste även lagrets hastighet läsas innan siffran döms.

This is educational financial analysis, not investment advice.