Interpreting the quick ratio
Strong, healthy, tight, stressed. The general bands and how industry context overrides them.
A quick ratio at or above 1.0 is generally considered healthy: the firm can cover every dollar of current liabilities from cash, near- cash assets, and receivables without selling inventory. Above 1.5 is strong; below 0.7 is tight; below 0.5 is stressed for most industries. These general bands are overridden by sector-specific bands (retail healthy at 0.2 to 0.6, pharma healthy at 1.5 to 3.0). Always check the sector benchmark page before drawing conclusions.
Verified June 2026. Source: Subramanyam, Financial Statement Analysis, 11th Edition (pp. 499-505).
General-purpose bands
| Band | Range | Interpretation |
|---|---|---|
| Strong | ≥ 1.5 | Comfortable liquidity. Above 3.0 may signal idle capital outside pharma and biotech. |
| Healthy | 1.0 to 1.5 | Textbook acceptable for most industries. One-for-one liability coverage. |
| Tight | 0.7 to 1.0 | Worth investigating alongside the cash conversion cycle and revolver availability. |
| Stressed | 0 to 0.7 | Yellow flag for most industries. Normal for retail and restaurants. Always check the sector band. |
| Insolvent | < 0 | Only possible with negative cash or AR figures (rare and almost always a data error). |
Industry overrides matter more than the general bands
A quick ratio of 0.5 is stressed for a software firm (sector band 1.2 to 2.5) but routine for a grocery chain (sector band 0.2 to 0.6). The general bands are a useful starting point but should never be applied without first checking the sector benchmark. This is why the calculator on this site asks for industry and uses the sector band when available.
Verified June 2026. Source: Damodaran NYU Stern Working Capital dataset; Subramanyam 11th Ed..
Common false signals
- A very high quick ratio. Quick ratios persistently above 3.0 outside pharma or biotech can signal lazy balance sheets. Equity analysts pressure boards to redeploy cash through buybacks or dividends.
- A spike at quarter end. Borrowers facing maintenance covenants sometimes draw revolvers late in the quarter to inflate cash, then repay the next day. Compare quarter-end and mid-quarter cash balances when possible.
- An apparent fall driven by debt reclassification. A long-term note moving inside the 12-month maturity window shifts to current liabilities and crushes the ratio without any change in cash position.
- An apparent rise driven by AR factoring. Selling AR off the balance sheet inflates cash, reduces receivables, and leaves the quick ratio roughly unchanged in arithmetic terms while disguising customer-credit risk.
What to read alongside
- Cash conversion cycle (days inventory plus days receivable minus days payable). A shortening cycle compensates for a low quick ratio.
- Revolver availability in the credit footnotes. Undrawn revolver capacity is liquidity that does not appear in the ratio.
- Debt maturity schedule for upcoming bullet payments inside the 12-month window.
- AR aging schedule to judge how much of receivables are likely to be collected within 90 days.
12 sector benchmarks
Damodaran-cited bands for industry-adjusted reading.
History of the acid-test
Where the 1.0 threshold came from, and why it persists.