Quick Ratio and Credit Ratings

The quick ratio refines the current ratio by excluding inventory, offering a stricter view of near-immediate liquidity.

Calculation

Quick ratio is calculated as (current assets minus inventory) divided by current liabilities — sometimes further refined to include only cash, bank balances, and near-cash investments in the numerator.

Why It Matters More for Some Sectors

For businesses where inventory is slow-moving, specialised, or difficult to liquidate quickly — such as certain manufacturing or real estate inventory — the quick ratio provides a more realistic picture of genuinely available liquidity than the current ratio, which is why agencies often weight it more heavily in those sectors.

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Disclaimer: This article is intended for general informational and educational purposes only and does not constitute financial, credit, investment, or legal advice. Credit ratings are assigned solely by SEBI-registered Credit Rating Agencies (such as CRISIL, ICRA, CARE Ratings, India Ratings, Brickwork, Acuite, and Infomerics) based on their own methodologies, policies, and the information available to them at the time of assessment. FinMen Advisors provides preparatory and advisory support to companies undergoing a rating exercise and does not issue, influence, or guarantee any rating outcome. Readers should exercise independent judgement and consult qualified professionals before making business or financial decisions.