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The quick ratio (also known as acid test ratio) is a good indicator of the ability of a company to repay its current debts. It differs from the working capital ratio because its calculation excludes the sale of inventory and prepaid elements that cannot currently be realized to meet the company’s obligations.

A quick ratio lower than 1 indicates that the company cannot repay the debts of its current liabilities. In this situation, settling certain debts may improve this financial ratio. Conversely, a quick ratio that is too high means that the company’s capital is underused. In this case, the company should make investments that will encourage its growth.

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