A/R Finance & Factoring Terms GLossary

Definition ofQuick Ratio or Acid Test

The Quick Ratio is a financial ratio used to gauge a company’s liquidity. The Quick Ratio is also known as the Acid Test. The Quick Ratio compares the total amount of cash + marketable securities + accounts receivable to the total amount of current liabilities. i.e. Very liquid assets to bills that need to be paid soon. A Quick Ratio of less than 1.0 is typically the sign of a company with cash flow issues and 2.0+ is that of a healthy company with good cash flow.

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