The Quick Ratio (Acid Test): Eight Big Balance Sheets, Checked

Michael Whitman · Trading since 2017, full-time since 2020 · Published 2026-09-27

The quick ratio is the stricter of the two common tests of short-term solvency. The current ratio counts every current asset, including goods sitting in warehouses; the quick ratio leaves the inventory out and asks whether what is left covers the bills due within a year.

This page shows the formula, works it through on Walmart’s latest balance sheet, then measures eight large companies from their own 10-K filings, and shows why the number means very different things in different businesses.

How it works

The formula. Quick ratio = (current assets - inventory) / current liabilities.

• Current assets are cash and anything expected to turn into cash within a year: short-term investments, money customers owe, inventory, and prepaid items.
• Current liabilities are what falls due within a year: bills from suppliers, wages and taxes owed, short-term debt and the current part of long-term debt.
• Inventory is removed because it has to be sold before it becomes cash, and in a bad year it may sell slowly or only at a discount.

A reading of 1.0 means the assets left after removing inventory exactly match the bills due within a year. Below 1.0, the company is relying on selling inventory, new cash from operations, or new borrowing to meet them.

Some analysts use a stricter version that counts only cash, short-term investments and receivables, which also drops prepaid expenses and other small current assets. This page uses the simpler “current assets minus inventory” version throughout, because every company reports those two lines the same way. The strictest test of all is the cash ratio: cash and cash equivalents alone over current liabilities.

It sits beside the current ratio and is always equal to it or lower. How far apart the two are tells you how much of a company’s short-term cushion is inventory.

A worked example

Walmart’s balance sheet at 31 Jan 2026, the end of its fiscal 2026, from its 10-K filed 13 Mar 2026:

• Current assets: $84.874 billion
• Inventory: $58.851 billion
• Current liabilities: $107.469 billion
• Cash and cash equivalents: $10.727 billion

The three ratios:

1. Current ratio: $84.874 billion / $107.469 billion = 0.79.
2. Quick ratio: ($84.874 billion - $58.851 billion) / $107.469 billion = $26.023 billion / $107.469 billion = 0.24.
3. Cash ratio: $10.727 billion / $107.469 billion = 0.10.

Read plainly: without selling any of its inventory, Walmart held about 24 cents of liquid current assets for every dollar due within a year. Inventory was 69.3% of its current assets, which is why the quick ratio is less than a third of the current ratio.

That does not mean Walmart is short of money. The same balance sheet shows $63.061 billion of accounts payable, the bills owed to suppliers, which is 107% of its inventory. Much of what sits on Walmart’s shelves has not yet been paid for, and it usually sells before the bill falls due.

The original data

Eight large companies, each from its latest 10-K, read from the SEC’s XBRL company facts on 25 Sep 2026. Every value comes from the filing’s own balance sheet: current assets, inventory, current liabilities, and cash and cash equivalents. The eight 10-Ks were filed between 8 Oct 2025 (Costco) and 29 Jul 2026 (Microsoft). JPMorgan Chase is left out because banks do not split their balance sheets into current and non-current items, and Exxon Mobil because its filings report inventory as two separate lines rather than one total.

Five of the eight had a quick ratio below 1.0: Amazon, Apple, Johnson & Johnson, Costco and Walmart. The median quick ratio was 0.87 and the median current ratio 1.04. These are among the largest companies in the US, so a reading below 1.0 on its own is clearly not a sign of trouble.

The gap follows the inventory. Microsoft, with inventory at 0.7% of current assets, moved from 1.23 to 1.22. Costco, at 47.2%, dropped from 1.03 to 0.55. Nvidia had the largest gap in absolute terms, 3.91 to 3.24, because its $21.403 billion of inventory sat on top of a very large cushion. Every value is in the quick ratio table.

How stable is it? Ten years of three balance sheets

Each year’s figure below comes from that year’s own 10-K, so later restatements do not change it.

• Walmart stayed between 0.20 and 0.28 in every year from fiscal 2016 to fiscal 2026 except one: 0.49 at 31 Jan 2021. This page does not try to explain that one year from the ratio alone.
• Costco ranged from 0.40 (fiscal 2016) to 0.64 (fiscal 2020) and stood at 0.55 in fiscal 2025.
• Apple fell from 1.33 in fiscal 2016 and 1.50 in fiscal 2019 to 0.85 in fiscal 2022, and has stayed between 0.83 and 0.94 since.

The steadiness is the point. A retailer’s quick ratio reflects how the business is built, so a change against its own history says more than the level. Nvidia’s ratio, from the same files, has swung between 2.40 and 7.34 since fiscal 2016. Every year for the four companies is in the yearly quick ratio table.

When it fails

It fails when inventory turns into cash faster than the bills fall due. Costco’s accounts payable were $19.783 billion against $18.116 billion of inventory, 109%. A warehouse retailer that sells goods before paying for them can run at a quick ratio near 0.5 for a decade, as the table shows, without any strain.

It fails when liquid assets are classed as long-term. Apple held $77.723 billion of marketable securities classed as non-current at 27 Sep 2025, the end of its fiscal 2025, on top of $18.763 billion classed as current. Counting the non-current holdings would lift its quick ratio from 0.86 to 1.33. The ratio only sees what the balance sheet puts in the current column.

The cash ratio has the same blind spot. Microsoft’s cash ratio at 30 Jun 2026 was 0.12, but it also held $55.908 billion of short-term investments; with them the figure is 0.46.

It fails when receivables are not really liquid. Money owed by customers counts in full, even if some of it will never be collected or is owed by one struggling buyer.

And it is a snapshot of one day. The ratio is taken at the fiscal year-end, which companies choose and can prepare for, and it says nothing about unused credit lines or about cash coming in next month. The cash flow statement and free cash flow show the flow that the balance sheet freezes.

Related

The current ratio is the broader measure this one tightens, and current assets and current liabilities explain the two sides of it.

The balance sheet is where all three come from, and liquidity covers the wider idea of how easily a company, or a market, can turn holdings into cash.

This page is educational, not financial advice. Test every idea on your own charts before risking money.