What ratio is used to evaluate a company's short-term liquidity?

The Quick Asset Ratio is a critical financial metric used to evaluate a company's short-term liquidity. This ratio measures a company's ability to meet its short-term obligations with its most liquid assets, which include cash and cash equivalents, accounts receivable, and other current assets that can be quickly converted into cash.

The Quick Asset Ratio is often considered a more stringent test of liquidity than the current ratio because it excludes inventory, which may not be as readily converted to cash. A higher Quick Asset Ratio indicates that the company is well-positioned to cover its short-term liabilities, reflecting better financial health and risk management.

This metric helps investors and creditors understand how quickly a company can respond to immediate financial needs without relying on the sale of inventory, which may involve delays or uncertainties. Thus, it's a key component in assessing a company's short-term financial resilience.