What the quick ratio means

The current ratio treats every current asset as equally able to cover a bill — but inventory is the least liquid one. It has to actually be sold, and sold at the expected price, before it turns into cash. The quick ratio (also called the acid-test ratio) strips inventory out entirely, leaving only the current assets a company could realistically convert to cash quickly: cash itself, receivables, and short-term investments. In practice, this series computes it as current assets minus inventory only, so smaller items such as prepaid expenses stay in; some sources strip those out too.

The formula

Quick Ratio = (Current Assets − Inventory) / Current Liabilities

Worked example: Desi Bites Foods, FY25

  ₹ Lakh
Current Assets − Inventory 479
Current Liabilities 267
Quick Ratio 1.79

Worked example: Britannia Industries, FY25

From Britannia Industries’ audited consolidated FY25 results (year ended 31 March 2025, filed 8 May 2025). For illustration only.

  ₹ Crore
Current Assets − Inventory 2,677.17
Current Liabilities 3,618.26
Quick Ratio 0.74

Strip out inventory, and Britannia’s coverage looks tighter still — 0.74, below 1. On paper, that’s the kind of number that would normally deserve real scrutiny at most companies. For Britannia specifically, it’s a case where the number needs company: paired with its cash conversion cycle of −8.6 days (it collects from customers in about 9.1 days but pays suppliers in about 60.3), a sub-1 quick ratio isn’t the same warning sign it would be at a company that actually waits on customers to pay before it can pay its own bills. That said — this is genuinely the exception, not the rule. For most companies, a quick ratio comfortably under 1 is worth investigating, not explaining away.

Common mistakes

  • Treating a sub-1 quick ratio as automatically a problem, or automatically fine. Neither extreme is right. It’s a real signal that deserves a look at why — and Britannia’s negative CCC is a legitimate why, but it’s not the default explanation for every company that shows up this way.
  • Using inconsistent definitions of “quick” assets. Because some versions also strip out prepaid expenses (see above), check which version a given source is using before comparing numbers across sites.
  • Comparing quick ratios across industries with very different inventory intensity. A software company (almost no inventory) will show a quick ratio close to its current ratio by default — the gap between the two ratios matters more than either number alone.
  • Ignoring the trend. A quick ratio steadily declining over several years, even if still technically above 1, is worth more attention than a single low reading at an otherwise fast-cycling business.

Takeaway: the quick ratio is the stricter cousin of the current ratio, showing coverage without leaning on inventory. A low number is usually worth investigating — but, as Britannia shows, read it alongside the company’s cash conversion cycle before jumping to a conclusion.