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Financial ratios are important indicators for gauging a company’s financial health. They show the financial position of the company, including its profitability and liquidity position. The two important ratios for measuring a company’s ability to pay short term obligations and liquidity are the current and quick ratios. This article covers the current ratio, quick ratio and current vs quick ratio in detail.

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Current Ratio vs Quick Ratio – Difference between Current Ratio and Quick Ratio

Following are the key differences between the Current Ratio vs Quick Ratio:

Basis of DifferenceCurrent RatioQuick Ratio
DefinitionThe current ratio is a liquidity ratio that computes the proportion of a company’s current assets to its current liabilities.The quick ratio is also a liquidity ratio that computes the proportion of a company’s highly liquid assets to its current liabilities.
ApproachThe current ratio is comparatively a relaxed approach to determine a company’s debt repayment capacity.The quick ratio is a stringent and conservative approach to determine a company’s debt repayment capacity.
ConsiderationConsiders assets that are easily convertible to cash within a year.Considers assets that are easily convertible to cash in 90 days or earlier.
InventoryIncludes inventory. Also, the current ratio is naturally high for firms with a strong stock of inventory.Excludes inventory. Also, the quick ratio is low for firms with a strong stock of inventory.
Ideal ResultThe ideal ratio is 2:1. However, anything above 1 is good.The ideal ratio is 1:1.

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