The quick ratio, also called the acid-test ratio, divides a company’s most liquid current assets — cash, receivables, and short-term investments, excluding inventory — by its current liabilities. It’s a stricter version of the current ratio that tests whether a company could meet short-term obligations without needing to sell inventory first.
For example, a company with RM60 million in current assets, of which RM20 million is inventory, and RM40 million in current liabilities has a quick ratio of (RM60M − RM20M) ÷ RM40M = 1.0 — its most liquid assets exactly match its short-term obligations.
The gap between a company’s current ratio and quick ratio shows how much of its short-term liquidity depends on selling inventory. A large gap is worth noting for businesses where inventory might be slow-moving or hard to liquidate quickly.