Liquidity Ratios: Current, Quick, and Cash Ratio

The Liquidity Ratio Includes 3 Ratios

Current Ratio, Quick Ratio, and Cash Ratio.

These ratios are based on assets and liabilities. But first, let's understand what an asset and a liability actually mean.

According to Robert T. Kiyosaki in his book Rich Dad Poor Dad, in simple terms — an asset is anything that puts money into your pocket, and a liability is anything that takes money out of your pocket.

Is a Home an Asset or a Liability?

If we live in a home, we need to maintain it and also pay property tax every year. For that reason, we cannot generate any money from it. So the home becomes a liability for us.

But if we also run a small business in the same home — for example, a cloud kitchen, a coaching class, or a yoga class — or if one of the floors is rented out, then it generates income for us. In that sense, the home becomes an asset for us.

Is a Car an Asset or a Liability?

If we purchase a car for personal use, we need to pay for regular maintenance and fuel costs. It takes money from us, so it becomes a liability. But the same car, if it runs on Uber, also generates money for us — making it an asset.

How About a Businessman?

If a businessman owns the place he operates from, it becomes an asset for him. And sometimes, to run or scale the business, he needs to take out a short-term or long-term loan — so that becomes a liability for him.

What Is Liquidity?

In simple terms, it shows a company's ability to pay its short-term debt or expenses by quickly converting its assets into cash. Short-term debt includes staff salaries, rent, taxes, vendor invoices, etc.

The most liquid asset for a company is cash — it can pay salaries, taxes, or anything without delay. Stocks and bonds are also considered liquid assets because a company can easily sell them and convert them into cash. Real estate and heavy machinery that a company owns are also its assets — but not liquid, because the company cannot sell them easily and convert them into cash in a short time.

Current Ratio

Current Ratio = Current Assets / Current Liabilities

For example, if Company A has $10M in assets and $5M in liabilities, its current ratio is 2. It shows the company has twice as many assets as liabilities.

We cannot use the current ratio alone to understand liquidity. It should be compared with the company's peers and industry standards. But the current ratio does not give a clear picture of a company's liquidity because it includes illiquid assets as well — for example, inventory.

Quick Ratio (Acid Test)

The current ratio includes illiquid assets like inventory and prepaid expenses, which cannot be converted to cash quickly. To get a clearer picture, we use the Quick Ratio — also known as the Acid Test Ratio. In short, it includes only the company's quick assets.

Quick Ratio = (Current Assets − Inventory − Prepaid Expenses) / Current Liabilities

However, it still includes trade receivables — the amount to be collected from customers within a year that remains outstanding.

The quick ratio is a stricter measure of liquidity compared to the current ratio.

Cash Ratio

The third ratio is the Cash Ratio. It includes only cash, cash equivalents, and short-term investments — and excludes trade receivables.

Cash Ratio = (Cash + Cash Equivalents + Short-term Investments) / Current Liabilities

Real Example: TCS vs. Accenture

Let's understand this with a real-world example using Accenture and TCS.

Balance Sheet Data Used

Item	TCS (FY 2025-26)	TCS (in USD)	Accenture (Q3 FY26)
Current Assets	Rs 1,35,705 Cr	$14.28B	$28.94B
Current Liabilities	Rs 60,914 Cr	$6.41B	$21.61B
Inventories	Rs 29 Cr	$0.003B	—
Prepaid / Other Assets	Rs 16,533 Cr	$1.74B	$2.73B
Cash + Bank Balances	Rs 12,908 Cr	$1.36B	$10.17B
Short-term Investments	Rs 33,770 Cr	$3.55B	$0.006B
Trade Receivables	Rs 67,714 Cr	$7.13B	$16.04B

Current Ratio

Current Ratio = Current Assets / Current Liabilities

Company	Current Assets	Current Liabilities	Current Ratio
TCS	$14.28B	$6.41B	2.23
Accenture	$28.94B	$21.61B	1.34

Quick Ratio

Quick Ratio = (Current Assets − Inventory − Prepaid Expenses) / Current Liabilities

Company	Current Assets	Inventory + Prepaid	Current Liabilities	Quick Ratio
TCS	$14.28B	$1.74B	$6.41B	1.96
Accenture	$28.94B	$2.73B	$21.61B	1.21

Cash Ratio

Cash Ratio = (Cash + Cash Equivalents + Short-term Investments) / Current Liabilities

Company	Cash + Equivalents + Investments	Current Liabilities	Cash Ratio
TCS	$4.91B	$6.41B	0.77
Accenture	$10.17B	$21.61B	0.47

Liquidity Ratios — TCS vs. Accenture

Summary

Ratio	What It Measures	Formula
Current Ratio	Overall short-term liquidity	Current Assets / Current Liabilities
Quick Ratio	Liquidity excluding inventory and prepaid expenses	(Current Assets − Inventory − Prepaid Expenses) / Current Liabilities
Cash Ratio	Liquidity from cash and short-term investments only	(Cash + Cash Equivalents + Short-term Investments) / Current Liabilities

All numbers are taken from the TCS Annual Report 2025-26 and the Accenture Q3 FY26 Earnings Release. Both are the latest available financial reports for each company. To keep the comparison simple, we have used an exchange rate of $1 = Rs 95.

This analysis is for educational purposes only and does not constitute investment advice.