Quick Ratio: The Stricter Liquidity Test That Strips Out Inventory

Last updated: October 2026

The quick ratio (also called the acid-test ratio) measures whether a company can pay its short-term debts using only cash, marketable securities, and receivables, excluding inventory. It is a stricter liquidity test than the current ratio and is useful for Singapore investors assessing companies where inventory may be slow-moving or hard to sell quickly.

Not financial advice. All figures for educational reference only. Data as at October 2026.

Key Takeaways

• The quick ratio formula is (Current Assets − Inventory) ÷ Current Liabilities, sometimes written as (Cash + Marketable Securities + Receivables) ÷ Current Liabilities.
• A quick ratio of 1.0 or higher generally means a company can cover its short-term debts without needing to sell any inventory.
• The quick ratio is more conservative than the current ratio because inventory, the least liquid current asset, is excluded entirely.
• Retail and F&B companies on SGX and Catalist often show lower quick ratios than service or technology companies, simply because their business models require holding more inventory.
• Like the current ratio, the quick ratio should be tracked over several quarters rather than read as a single snapshot.

What Is Quick Ratio?

The quick ratio strips out inventory from the current ratio calculation because inventory can take weeks or months to convert into cash, and in some cases may never sell at its stated book value. It is sometimes called the “acid-test” ratio, borrowing a term from an old method of testing whether metal was genuine gold — a quick, no-nonsense test of true liquidity.

The two common formulas are: (Current Assets − Inventory) ÷ Current Liabilities, or more precisely, (Cash + Marketable Securities + Accounts Receivable) ÷ Current Liabilities. Both arrive at a similar figure, though the second version is more accurate since it also excludes prepaid expenses, which cannot be converted to cash at all.

For Singapore investors, the quick ratio matters most when screening retail, F&B, or manufacturing companies on SGX and Catalist, where inventory often makes up a large share of current assets. A company that looks liquid on the current ratio but weak on the quick ratio may be more exposed to a slowdown in sales than its headline numbers suggest.

The quick ratio is particularly useful during periods of economic uncertainty, such as a sudden rise in interest rates or a slowdown in consumer spending, because it answers a more immediate question than the current ratio: could this company survive a sharp, short-term revenue shock without needing to liquidate inventory at a discount or raise emergency financing? Singapore investors evaluating SGX retail, F&B, or industrial counters during such periods often find the quick ratio a more conservative and arguably more honest gauge of resilience than the current ratio alone.

It is worth noting that some analysts use an even stricter version of the quick ratio, sometimes called the “cash ratio,” which excludes receivables as well and counts only cash and cash equivalents against current liabilities. This is rarely necessary for most Singapore blue-chip screening, since receivables from established corporate customers are usually reliable, but it becomes more relevant when analysing smaller Catalist-listed companies with a concentrated customer base, where a single late or defaulting payer could meaningfully distort the receivables figure used in the standard quick ratio calculation.

How Does Quick Ratio Work in Singapore?

Singapore-listed companies disclose inventory, receivables, and cash balances separately in their quarterly SGXNet filings, which makes the quick ratio straightforward to calculate from any set of published financial statements.

Source: General SG equity analysis conventions based on SGX-listed company filings; actual ranges vary by company.

Brokerages serving Singapore investors, including FSMOne and Tiger Brokers, typically show the quick ratio alongside the current ratio in a stock’s fundamentals section, sourced from the latest reported balance sheet.

Quick Ratio Example

Take a Singapore-listed F&B retail chain with the following FY2026 figures:

• Cash: SGD 8 million
• Accounts receivable: SGD 4 million
• Inventory: SGD 18 million
• Current liabilities: SGD 20 million

Quick Ratio = (SGD 8 million + SGD 4 million) ÷ SGD 20 million = 0.6

Even though this company might show a current ratio above 1.0 once the SGD 18 million of inventory is included, its quick ratio of 0.6 means it would need to sell some inventory to cover short-term debts using only its most liquid assets — a detail a Singapore investor would want to understand before buying the stock, especially if the inventory includes seasonal or perishable stock.

Advantages of Quick Ratio

It removes the weakest link. By excluding inventory, the quick ratio avoids the main distortion that makes the current ratio unreliable for retail, F&B, and manufacturing companies with large stock holdings.

It is a faster warning signal. Because it is stricter, a deteriorating quick ratio often shows liquidity stress earlier than the current ratio would.

It is useful for comparing companies within the same sector. Two SGX retail counters with similar current ratios can have very different quick ratios depending on how fast their inventory turns over.

It is free and simple to calculate. Like the current ratio, every number needed is already disclosed in a company’s quarterly results.

Risks and Limitations

It can understate liquidity for inventory-light, fast-turnover businesses. A grocery retailer that sells through its stock every few weeks may look weaker on the quick ratio than its real-world liquidity position justifies.

It ignores off-balance-sheet credit lines. A company with an undrawn bank credit facility may be perfectly able to meet short-term obligations despite a low quick ratio, since the facility does not show up as a current asset.

Receivables quality is assumed, not tested. The quick ratio treats all accounts receivable as collectible, but some customers may be slow payers or at risk of default, which the ratio does not capture.

It is still a single-point snapshot. As with the current ratio, a single quarter’s number can be flattered or weakened by timing of payments around the reporting date.

Quick Ratio: Comparison

Source: General SG equity analysis conventions; ranges vary by sector.

The Bottom Line

For Singapore investors, the quick ratio is the stricter sibling of the current ratio — it strips away inventory to show whether a company can truly pay its bills using cash and near-cash assets alone. A quick ratio near or above 1.0 is reassuring, but a lower figure is not automatically a red flag; it depends heavily on how fast the company’s inventory sells and whether it has backup credit facilities in place.

Frequently Asked Questions

Related Terms

• Current Ratio Singapore
• Debt-to-Equity Ratio Singapore
• Free Cash Flow Singapore
• Return on Equity (ROE) Singapore
• Price-to-Earnings (P/E) Ratio Singapore