Skip to contents

Quick Ratio

Source: R/get-quick-ratio.R
get_quick_ratio.Rd

Measures liquidity using only the most liquid assets, excluding inventory and prepaid expenses.

Formula:

qr = quick_assets / current_liabilities

quick_assets        = cash + savings + pledges_receivable + accounts_receivable
current_liabilities = accounts_payable + grants_payable

Definitional Range

The quick ratio is bounded below at zero (no asset values are negative on a properly prepared balance sheet) and is unbounded above. In practice the empirical range for nonprofits is approximately [0, 10], with extreme values above 5 typically indicating cash hoarding, an unusually large receivables balance, or an organization with minimal current liabilities (e.g., a grant-making foundation with no accounts payable).

Values below zero can occur when net receivables are negative (allowances for uncollectible pledges exceed gross pledges) or when the denominator carries accounting adjustments. Very large values can result when current liabilities are near zero, producing ratios that are mathematically valid but practically uninterpretable. The default winsorization at the 1st/99th percentiles addresses both extremes.

Benchmarks and rules of thumb

  • Above 1.0: Conventionally adequate; liquid assets cover current liabilities.

  • 0.5-1.0: Potential short-term stress.

  • Below 0.5: Common vulnerability threshold (Tuckman & Chang 1991).

  • Very high values (above 3-5) may signal excess cash hoarding rather than financial health.

  • A declining trend over consecutive years is a stronger warning signal than any single year's value.

Calculated For: 990 + 990EZ filers.

Usage

get_quick_ratio( df,
  cash                = "F9_10_ASSET_CASH_EOY",
  savings             = "F9_10_ASSET_SAVING_EOY",
  pledges_receivable  = "F9_10_ASSET_PLEDGE_NET_EOY",
  accounts_receivable = "F9_10_ASSET_ACC_NET_EOY",
  accounts_payable    = "F9_10_LIAB_ACC_PAYABLE_EOY",
  grants_payable      = "F9_10_LIAB_GRANT_PAYABLE_EOY",
  numerator = NULL, denominator = NULL, winsorize = 0.98 ,
  range     = "zp",
  sanitize  = TRUE,
  summarize = FALSE )

Arguments

df

A data.frame containing the fields required for computing the metric.

cash

Cash on hand, EOY.

savings

Short-term investments (savings), EOY.

pledges_receivable

Net pledges and grants receivable, EOY.

accounts_receivable

Accounts receivable, net, EOY.

accounts_payable

Accounts payable and accrued expenses, EOY.

grants_payable

Grants and similar amounts payable, EOY.

numerator

Optional. A pre-aggregated column for quick assets. Cannot be combined with the individual asset arguments.

denominator

Optional. A pre-aggregated column for current liabilities. Cannot be combined with accounts_payable or grants_payable.

winsorize

The winsorization value (between 0 and 1), defaults to 0.98, which winsorizes at the 1st and 99th percentiles.

range

Character string specifying the theoretical range of the ratio, used to set winsorization bounds. Default "zp". Options: "np" (negative to positive), "zp" (zero to positive), "zo" (zero to one), "nz" (negative to zero), or a custom "lo;hi" pair (e.g. "0;10").

sanitize

Logical (default TRUE). If TRUE, NA values in the financial input columns are imputed to zero before the ratio is computed, respecting form scope: Part X and VIII/IX fields (990 only) are imputed only for 990 filers; Part I summary fields (990 + 990EZ) are imputed for all filers. The returned dataframe always contains the original unmodified input columns.

summarize

Logical. If TRUE, prints a summary() of the results and plots density curves for all four output columns (raw, winsorized, z-score, percentile). Defaults to FALSE.

Value

Object of class data.frame: the original dataframe appended with four new columns:

- `quick`   - quick ratio (raw)
- `quick_w` - winsorized version
- `quick_z` - standardized z-score (based on winsorized values)
- `quick_p` - percentile rank (1-100)

Details

Primary uses and key insights

The quick ratio (also called the acid-test ratio) is a short-term liquidity measure that asks whether an organization could pay all of its current obligations immediately, using only assets that can be converted to cash within days or weeks rather than months. Unlike the current ratio (get_current_ratio()), it excludes inventory and prepaid expenses, which are less reliably liquid. For nonprofits this distinction is especially meaningful: prepaid expenses (insurance premiums, deposits) cannot be recovered quickly, so including them in a liquidity test is misleading.

The quick ratio is most useful for detecting near-term insolvency risk, stress-testing an organization's ability to absorb a sudden revenue disruption, and comparing liquidity positions across organizations of different sizes. It is a common component of multi-ratio financial health scoring models in the nonprofit literature.

Formula variations and their sources

The standard for-profit formula (Brigham & Houston 2019) defines quick assets as cash + marketable securities + net receivables, and current liabilities as all obligations due within one year. Nonprofit applications require two adaptations:

  • Receivables: Pledges receivable are included in the nonprofit version because they are a normal operating asset with a defined cash-in timeline. Some analysts exclude multi-year pledges (only the current-year portion is truly liquid), but the 990 Part X does not break pledges into current vs. long-term portions, so the full net amount is used here.

  • Current liabilities: For-profit firms sum all current liabilities (accounts payable, short-term debt, accrued liabilities, current portion of long-term debt, deferred revenue, etc.). The 990 balance sheet does not label liabilities as current vs. long-term. This implementation uses accounts payable plus grants payable as the best available proxy for near-term obligations, following Tuckman & Chang (1991) and Greenlee & Trussel (2000). Mortgage notes payable (line 23B) are excluded because they are long-term in nature, and unsecured notes (line 24B) are excluded because they typically carry defined maturity dates outside a 12-month window.

An alternative numerator used by some analysts (Hager 2001) adds short-term investments held for sale (F9_10_ASSET_INV_SALE_EOY) on the grounds that these can be liquidated quickly. That field is excluded here because many nonprofits classify long-term endowment holdings under the same line, making it an unreliable current asset proxy.

Why this formula was chosen

The formula implemented here follows the approach used in the majority of empirical nonprofit financial health studies: a restricted numerator (cash, savings, and receivables only) divided by near-term payables. This is the most conservative defensible version given the ambiguity of 990 balance sheet categories. It is consistent with the operationalization in Tuckman & Chang (1991), the foundational paper establishing financial vulnerability indicators for nonprofits, and with the panel analyses in Greenlee & Trussel (2000) and Keating et al. (2005).

Canonical citations

  • Tuckman, H.P. & Chang, C.F. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445-460. - Introduced the four-indicator financial vulnerability framework for nonprofits; liquidity is a core component.

  • Greenlee, J.S. & Trussel, J.M. (2000). Predicting the financial vulnerability of charitable organizations. Nonprofit Management and Leadership, 11(2), 199-210. - Applied and extended Tuckman & Chang using logistic regression on IRS 990 data.

  • Keating, E.K., Fischer, M., Gordon, T.P. & Greenlee, J. (2005). Assessing financial vulnerability in the nonprofit sector. Harvard Business School Working Paper 04-016. - Comprehensive review of ratio-based vulnerability measures, including liquidity.

  • Hager, M.A. (2001). Financial vulnerability among arts organizations: A test of the Tuckman-Chang measures. Nonprofit and Voluntary Sector Quarterly, 30(2), 376-392. - Tests alternative operationalizations including extended liquidity numerators in an arts sector context.

  • Zietlow, J., Hankin, J.A. & Seidner, A. (2007). Financial Management for Nonprofit Organizations. Wiley. - Practitioner text with the most detailed discussion of quick ratio benchmarks specific to nonprofits.

Variables used:

  • F9_10_ASSET_CASH_EOY: Cash on hand, EOY (cash)

  • F9_10_ASSET_SAVING_EOY: Savings and short-term investments, EOY (savings)

  • F9_10_ASSET_PLEDGE_NET_EOY: Net pledges receivable, EOY (pledges_receivable)

  • F9_10_ASSET_ACC_NET_EOY: Accounts receivable, net, EOY (accounts_receivable)

  • F9_10_LIAB_ACC_PAYABLE_EOY: Accounts payable and accrued expenses, EOY (accounts_payable)

  • F9_10_LIAB_GRANT_PAYABLE_EOY: Grants and similar amounts payable, EOY (grants_payable)

Examples

library( fiscal )
data( dat10k )

d <- get_quick_ratio( df = dat10k )
#>    :: Current liabilities equal to zero :: 2,378 case(s) replaced with NaN
head( d[ , c( "quick", "quick_w", "quick_z", "quick_p" ) ] )
#>          quick     quick_w    quick_z quick_p
#>          <num>       <num>      <num>   <int>
#> 1:          NA          NA         NA      NA
#> 2:         NaN         NaN        NaN      NA
#> 3: 40.03872356 40.03872356  0.9162389      72
#> 4:          NA          NA         NA      NA
#> 5:  0.06378109  0.06378109 -0.9014168       2
#> 6:          NA          NA         NA      NA