What is the Quick Ratio? A Key Indicator for Assessing Short-Term Solvency

When learning about corporate finance, the "Quick Ratio" is a term that always comes up.
This time, I have summarized the Quick Ratio in an easy-to-understand way, partly to organize my own learning.

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✅ What is the Quick Ratio?

It is an indicator that shows how well a company can withstand short-term payments (solvency).
It checks more strictly than the "Current Ratio," which also measures short-term solvency.

✔ Current Ratio = A rough check
✔ Quick Ratio = Evaluated only by "money that can be paid immediately"

That is the general idea.

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📌 Why "Quick"?

"Quick" refers to things that can be converted into cash immediately.

In other words,
• Money that can be paid immediately (Quick Assets)
• Money that must be paid immediately (Current Liabilities)

are compared to determine solvency.

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🧮 Quick Ratio Calculation Formula

Quick Ratio = \frac{Quick Assets}{Current Liabilities} \times 100

For example,
Quick Assets 5 million yen / Current Liabilities 5 million yen → Quick Ratio 100%

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📦 What are Quick Assets? (This is important)

Quick assets are those extracted from current assets that are "only those that can be converted to cash immediately."

▶ Items included in Quick Assets
• Cash
• Deposits
• Notes Receivable
• Accounts Receivable
• Securities (for short-term trading purposes)

▶ Items not included in Quick Assets
• Inventory
• Prepaid Expenses
• Supplies

👉 The idea is that inventory takes time to sell, so it cannot be used for short-term payments.

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📊 Quick Ratio Benchmarks

Quick Ratio Evaluation Details
100% or more Safe zone Current liabilities can be covered by quick assets alone
70–100% Caution Somewhat concerning depending on the company
Less than 70% Danger Possibility of tight cash flow

Looking at the financial statements of small and medium-sized enterprises,
my impression is that **60–80%** is actually common.

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🌙 What I felt after learning this

The Quick Ratio is a super-basic indicator for looking at short-term cash flow strength.
I felt it is very important as an entry point for financial analysis.

As I become more involved in corporate proposals and inheritance fields in the future,
I will have more opportunities to read corporate financial statements,
so I reaffirmed that this is knowledge I need to understand thoroughly.

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🌕 Finally, to summarize simply

Quick Ratio = "Money that can be paid right now" ÷ "Money that must be paid right now"

Since it is an indicator that strictly looks at short-term solvency,
it is a very important figure when looking at a company.