Quick Ratio (Liquidity Ratio 2) Explained Simply

The quick ratio, also known internationally as the quick ratio, is one of the most important financial ratios for assessing a company’s short-term solvency. Unlike the current ratio, it also takes short-term receivables into account—which makes it more realistic and particularly relevant in practice.

What is the quick ratio?

The Quick Ratio shows whether your company could cover its short-term liabilities using cash and cash equivalents and receivables that can be collected in the short term. Unlike the Current Ratio, inventory is deliberately excluded—it is often difficult to liquidate in a crisis situation.

This ratio is particularly meaningful because receivables typically convert to cash quickly in the normal course of business. It thus provides you with a realistic picture of your short-term solvency.

Why is the Quick Ratio important?

For SMEs, the Quick Ratio is the most commonly used liquidity ratio in practice. Banks, investors, and suppliers frequently use it to assess financial stability. The Quick Ratio is also a key metric in the context of credit checks.

Unlike the current ratio, it is less strict but still conservative—a good compromise between informative value and realism.

Calculation of the quick ratio

You add the cash and cash equivalents and the current receivables, divide the result by current liabilities, and multiply by 100. Current receivables primarily include accounts receivable with a remaining term of less than one year.

A concrete example

Imagine your company has 80,000 Swiss francs in cash and cash equivalents and 220,000 Swiss francs in outstanding accounts receivable. Current liabilities amount to 400,000 Swiss francs. Liquidity ratio 2 is calculated as follows: (80,000 + 220,000) divided by 400,000 times 100 equals 75 percent.

This means you could cover three-quarters of your short-term debt with cash and receivables—a solid figure.

What is a good value?

As a rule of thumb, the current ratio should be at least 100 percent. This means that current liabilities are fully covered by cash and receivables. Values between 100 and 130 percent are considered healthy. Values significantly below 100 percent may indicate potential payment difficulties and should be analyzed more closely.

Values significantly above 150 percent are not automatically positive—they may indicate that receivables are being collected inefficiently or that too much capital remains unused.

Limitations of the ratio

Liquidity Ratio 2 assumes that the reported receivables are actually collected promptly and in full. In reality, however, payment defaults or delays may occur. A high liquidity ratio 2 is therefore only meaningful if accounts receivable management is also functioning effectively.

The quality of receivables is also important: overdue or doubtful receivables should be written down in a realistic analysis. Findea is happy to help you take a nuanced view of your liquidity situation and draw the right conclusions.

The Complete Guide at a Glance

This article is part of our comprehensive series on the most important financial ratios for Swiss SMEs. In the complete guide to the 10 most important financial ratios for SMEs, you’ll find all key figures at a glance—from profitability and liquidity to financing structure.

Formula: Quick Ratio

Quick Ratio (%) = ((Cash and Cash Equivalents + Current Receivables) ÷ Current Liabilities) × 100

Inventories are intentionally excluded