Quick ratio (acid-test ratio)

The quick ratio is worked out from figures on the target business’s balance sheet. BDC says the quick ratio, like the current ratio, measures the ability to access cash quickly to support immediate demands, but it excludes inventory. BDC says lenders looking at a balance sheet use financial ratios to determine the stability and health of a business.

How BDC describes the calculation

BDC’s glossary divides quick assets by current liabilities, and lists cash and accounts receivable as quick assets. Its ratio guide adds short-term investments and says the current portion of long-term debt is left out of the liabilities. Because the two BDC pages differ slightly, check the definition written in any loan agreement or term sheet.

What to check or ask

• Which assets and which liabilities the lender includes in the calculation.
• Whether the ratio appears as a covenant in the loan, and how often it is tested. See loan covenant.
• How the figure compares with the current ratio on the same statements.

For how lenders assess a purchase loan more broadly, see how to get a loan to buy a business.