The quick ratio measures a company’s ability to cover its short-term debts using its most liquid current assets. The formula for the quick ratio can be expressed in several ways.
Quick Ratio = [Cash & Cash Equivalents + Marketable Securities + Accounts Receivable] / Current Liabilities
Quick Ratio = [Current Assets – Inventory – Prepaid Expenses] / Current Liabilities
The calculation excludes inventory and prepaid expenses from total current assets. Although these items are technically current assets, they are far less liquid, so it is unlikely that a company could sell these quickly to cover its debts.