Finance

What is Quick ratio?

Quick ratio, also known as acid-test ratio or liquidity ratio, is an indicator of a business’s ability to meet its short-term obligations or liabilities by having liquid assets (cash and assets that can be quickly converted to cash).

Quick ratio formula

Quick ratio can be calculated two ways
            Quick Ratio = [Cash & equivalents + marketable securities + accounts receivable] / Current liabilities
        
            Quick Ratio = [Current Assets – Inventory – Prepaid expenses] / Current Liabilities
        

SaaS Quick ratio

In the SaaS industry, investors often use quick ratio along with other key SaaS metrics to measure the growth efficiency. It helps gauge a company’s potential to improve their MRR in spite of churn.
            SaaS Quick ratio = MRR added / MRR lost (MRR added = New MRR + Expansion MRR Lost MRR = Downgrade MRR + Cancellation MRR)
        

SaaS Quick ratio benchmark and interpretation

A quick ratio of 4 is considered healthy. But, having a lower quick ratio doesn’t necessarily scream danger. It is very subjective to the scale of the business. Quick ratio by itself can’t be the sole determinant of a company’s efficiency. It should be looked at in conjunction with CAC and LTV to get a better understanding of your operational and growth efficiency.
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