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Quick Ratio
The quick ratio, also known as the acid-test ratio, measures a company’s ability to meet its short-term liabilities with its most liquid assets (those that can be quickly converted to cash). It is calculated as:
Quick Ratio = (Current Assets – Inventory) / Current Liabilities
A higher ratio indicates better short-term financial health, as it suggests the company can cover its obligations without relying on selling inventory. A ratio of 1 or higher is generally considered good, though this can vary by industry.
