The quick ratio also known as acid test ratio is an indicator of a company’s short-term liquidity position and measures a company’s ability to meet its short-term obligations with its most liquid assets.

The higher the ratio, the greater the company’s liquidity this means that the company able to meet current obligations using liquid assets.

**Formula to calculate quick ratio.**

**Example:**

In a certain financial period of a firm, the value of the cash at hand and equivalent was $200,000, the value of the short term marketable securities was $ 60,000, the accounts receivables were worth $40,000 and the value of the current liabilities was $ 40,000. Determine the quick ratio of the firm.

Therefore, the quick ratio of the company is 7.5.