7. Quick Ratio

A more stringent measure of liquidity than the current ratio, it excludes inventory from current assets. Calculated by dividing (current assets - inventory) by current liabilities, it provides insight into a company’s ability to meet short-term obligations without relying on inventory sales.

Example: A company has $200,000 in current assets, $50,000 in inventory, and $150,000 in current liabilities. The quick ratio would be ($200,000 - $50,000) / $150,000 = 1.00.