Glossary term
Quick Ratio
(Current assets minus inventory) divided by current liabilities. Measures short-term liquidity without assuming inventory can be sold quickly. Above 1.0 means a company can cover near-term obligations from liquid assets alone. Rubin 100 requires a Quick Ratio above 1.2 for cyclical semiconductor and memory constituents — margin of safety for capex-heavy names.
Definition & Context
The Quick Ratio, sometimes called the Acid-Test Ratio, is a stricter cousin of the Current Ratio. It asks: if I could not sell inventory, could I still pay my short-term bills from cash, receivables and marketable securities? Formula: (Cash + Receivables + Short-term Investments) / Current Liabilities, or equivalently (Current Assets − Inventory) / Current Liabilities. A Quick Ratio of 1.0 means parity; below 1.0 is a warning; above 1.5 indicates comfortable liquidity.
Context matters. Software companies routinely post Quick Ratios above 3 because they carry almost no inventory and collect cash via subscriptions; semiconductor companies sit around 1.0–2.0 with heavy capex claims on cash; industrial manufacturers can operate stably at 0.8 by leaning on inventory turns. The trajectory matters more than the level: a falling Quick Ratio through a capex build is expected; a falling ratio with stable capex suggests cash-conversion problems.
Why It Matters for Investors
Balance-sheet liquidity is what separates a cyclical business that survives a downturn from one that issues dilutive equity at the bottom. Rubin Build-Out 100 requires Quick Ratio above 1.2 for any constituent in the semiconductor, memory or equipment sub-sectors — these cycles are deep enough that a 6–12 month revenue air-pocket is normal, and names that enter it with tight liquidity historically dilute or leverage. HALO 100 is less strict because its compounder universe has lower capital intensity.
Related Concepts
Quick Ratio complements Drawdown as a can-the-business-survive check and sits alongside EBITDA Multiple in fundamental screens; weakness in both is a classic precursor to Unsystematic Risk events.