---
title: Current Ratio and Quick Ratio in Financial Statements
description: The current ratio and quick ratio in financial statements evaluate short-term debt repayment. Explore formulas, illustrative figures, and Q3/2026 data.
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# Current Ratio and Quick Ratio in Financial Statements

> The current ratio and quick ratio in financial statements evaluate short-term debt repayment. Explore formulas, illustrative figures, and Q3/2026 data.

Gini · Learn investing · 2026-11-01 · https://ginity.vn/en/blog/current-ratio-and-quick-ratio-in-financial-statements

_Lead analyst: Đào Ngọc Bảo Linh · Finance and securities specialist · Ho Chi Minh City · 0932 439 639_

## Key takeaways

- The current ratio compares current assets against current liabilities, reflecting debt coverage capacity over a 12-month horizon.
- The quick ratio excludes inventory from liquid assets; according to Wall Street Prep, a quick ratio above 1.0x indicates healthy liquidity for most industries.
- Statistics from VnEconomy on 31/10/2026 recorded 797 listed enterprises achieving 35.8% year-on-year profit growth in Q3/2026, underlining that business expansion requires prudent short-term liquidity management.
- Financial statements prepared under Circular 200/2014/TT-BTC separate assets and obligations around a 12-month operating threshold, enabling investors to evaluate cash flow resilience.

Short-term liquidity protects operating enterprises against unexpected cash flow disruptions in financial markets. When economic environments experience shifts in funding costs, companies reporting strong accounting earnings can still face technical insolvency if liquid funds evaporate. To detect liquidity stress ahead of time, investors examine two balance sheet metrics: the current ratio and the quick ratio.

Under regulatory guidelines codified in [Circular No. 200/2014/TT-BTC](https://vanban.chinhphu.vn/?docid=178998&pageid=27160) issued on 22/12/2014 by the Ministry of Finance guiding the enterprise accounting regime, corporate balance sheets segregate short-term assets and current liabilities using a 12-month horizon or one normal operating cycle. Learning [how to read a balance sheet](/en/blog/reading-balance-sheet-vietnam) helps investors check whether a company holds enough short-term assets to meet its obligations.

## Current ratio measures short-term debt coverage

The current ratio measures the degree to which short-term resources cover immediate debts coming due within 12 months. This indicator answers a fundamental question: if every short-term creditor demanded repayment simultaneously, would the company's existing current assets suffice to settle those obligations?

The formula for determining the current ratio is expressed as follows:

$$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$$

In this equation, current assets encompass cash, bank demand deposits, short-term marketable securities, trade receivables from customers, merchandise inventories, and other liquid resources. On the denominator side, current liabilities aggregate short-term trade payables, statutory tax obligations, accrued short-term operating expenses, and bank loans maturing within 12 months.

Examining an illustrative numerical case, according to Ginity calculations, assume an industrial enterprise holds 1,500 billion VND in current assets against 1,000 billion VND in current liabilities. Applying the formula yields a current ratio of 1.5 times (1,500 divided by 1,000). In this hypothetical illustration, assume the liquid asset cushion of 500 billion VND (1,500 minus 1,000) provides management with flexibility to honor supplier invoices and commercial bank debt without selling productive fixed equipment.

## Quick ratio excludes slow-moving inventory

While the current ratio provides a broad overview, it contains an analytical blind spot: the inclusion of warehouse inventories. Within the current asset basket, inventory represents the least liquid component. Businesses cannot transform physical stock into cash instantly; merchandise must undergo processing, marketing, distribution, and invoice collection. During periods of weak consumer demand, physical stock also risks depreciation or obsolescence, necessitating impairment provisions.

To evaluate emergency repayment capacity under strict conditions, financial analysts rely on the quick ratio, also known as the acid-test ratio. This metric removes total inventory from current assets, isolating resources that can convert into liquid funds rapidly.

The formula for calculating the quick ratio is expressed as follows:

$$\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventories}}{\text{Current Liabilities}}$$

The numerator resulting from this subtraction is termed quick assets, consisting of cash, cash equivalents, short-term marketable securities, and net trade receivables. Conservative analysts frequently subtract short-term prepaid expenses as well, as prepaid items do not generate direct incoming cash flows.

Liquidity analysis from [Wall Street Prep](https://www.wallstreetprep.com/knowledge/quick-ratio/) indicates that isolating quick assets allows analysts to assess whether liquid cash and receivables suffice to retire current obligations without depending on warehouse inventory clearances.

To examine how quickly working capital circulates across procurement, warehousing, and cash collection stages, investors can review the [cash conversion cycle](/en/blog/cash-conversion-cycle-working-capital-efficiency). When operating cash cycles shorten, the necessity of maintaining high quick ratio buffers diminishes accordingly.

In a comparative hypothetical case, according to Ginity calculations, assume two equipment distributors, Firm A and Firm B, both record an identical current ratio of 1.6 times, with current assets of 800 billion VND and current liabilities of 500 billion VND. However, Firm A carries 200 billion VND in inventories, whereas Firm B carries 550 billion VND in warehouse inventory.

Based on the illustrative figures above, according to Ginity calculations, Firm A attains a quick ratio of 1.2 times ((800 minus 200) divided by 500). Conversely, Firm B posts a quick ratio of 0.5 times ((800 minus 550) divided by 500). If distribution channels encounter seasonal slowdowns, Firm B faces immediate liquidity strain because its cash and customer receivables cover only half of its maturing debts.

> Chart: Liquidity ratio comparison between illustrative firms A and B. times. Firm A Current: 1.6; Firm A Quick: 1.2; Firm B Current: 1.6; Firm B Quick: 0.5.

## Comparing core liquidity metrics across tiers

The table below outlines the asset scope, liability denominator, standard benchmarks, and practical significance across core liquidity evaluation tiers:

| Liquidity metric | Numerator asset scope | Denominator liability scope | Reference benchmark per Wall Street Prep | Analytical significance |
| :--- | :--- | :--- | :--- | :--- |
| Current ratio | All current assets (cash, short-term investments, receivables, inventory) | All current liabilities | Varies by industry and operating cycle | Measures overall capacity to meet obligations maturing within 12 months |
| Quick ratio | Cash, short-term investments, trade receivables (excluding inventory) | All current liabilities | Above 1.0x for most industries; 1.5 – 3.0 range is considered ideal (WSP) | Measures immediate debt coverage without depending on inventory sales |

*Source: Compiled from [Wall Street Prep - Quick Ratio](https://www.wallstreetprep.com/knowledge/quick-ratio/).*

Each metric checks a different layer of liquidity. Looking at both metrics gives a clearer picture of short-term debt coverage.

## Capital cost pressures and asset quality in 2026

In 2026, listed companies in Vietnam focus on managing working capital closely as business activity expands.

Regarding overall corporate performance, market compilation by [VnEconomy](https://vneconomy.vn/da-co-797-doanh-nghiep-bao-cao-loi-nhuan-quy-32026-tang-manh-358.htm) on 31/10/2026 indicated that by 30/10/2026, 797 out of 1,518 listed enterprises and banks (representing 77.0% of total market capitalization) reported Q3/2026 earnings with aggregate post-tax net profit rising 35.8% year-on-year. Notably, non-financial corporate profits climbed 65.5% year-on-year in Q3/2026.

Alongside earnings growth, preserving short-term debt solvency remains essential to capital security. As highlighted on the [Government News Portal](https://baochinhphu.vn/bao-dam-cho-doanh-nghiep-tiep-can-von-vay-voi-lai-suat-phu-hop-102261031094012587.htm) on 31/10/2026, National Assembly delegates proposed ensuring corporate access to bank credit at appropriate interest rates to sustain business liquidity.

Monetary statistics published on the [Government News Portal](https://baochinhphu.vn/thong-doc-noi-ve-lai-suat-tin-dung-bat-dong-san-va-von-cho-doanh-nghiep-102261031130933268.htm) on 31/10/2026, outstanding credit directed toward manufacturing and commercial business sectors represented 77.44% of total banking system loans, while real estate credit grew 9.84%.

## Common pitfalls when evaluating liquidity metrics

When analyzing current and quick ratios, analysts track potential accounting distortions that can mask underlying liquidity strains. Three specific reporting pitfalls warrant careful scrutiny:

First is the pitfall of receivable quality. Both the current ratio and the quick ratio retain trade receivables in their numerators. If an enterprise eases trade credit policies to artificially accelerate revenue expansion, accounts receivable expand rapidly. Overdue or uncollectible receivables that lack proper impairment provisions inflate reported liquid assets. Analysts must examine notes to the financial statements and calculate days sales outstanding to determine whether reported customer debts represent genuine incoming cash.

Second is the pitfall of inventory valuation. In the current ratio, merchandise inventories make up a large fraction of current assets. If an enterprise delays recognizing inventory provisions for obsolete goods or conceals deteriorated merchandise, current assets appear artificially strong. In industries with rapid product lifecycles such as consumer electronics or apparel, relying exclusively on the current ratio can mislead investors regarding true debt repayment capacity.

Third is window dressing around reporting dates. Because the balance sheet presents financial standing at a single cutoff date, typically the final day of a quarter or fiscal year, companies can execute temporary transactions to flatter liquidity indicators. For instance, management might postpone vendor payments until early in the subsequent quarter or draw down short-term bank credit to boost demand deposits before the books close.

Consequently, financial analysis tracks liquidity ratio trajectories across at least 4 to 8 consecutive quarters rather than evaluating a solitary accounting date. Combining liquidity indicators with operating cash flow trends from the cash flow statement reveals whether an enterprise's debt repayment capabilities stem from genuine commercial activities.

*Disclaimer: This article compiles public regulatory records and established financial reports for objective educational and informational purposes. The content does not constitute investment advice, trading recommendations, or price targets for any securities. Cover image: Illustrative image (AI, watermarked).*

## Sources

- Wall Street Prep: [Quick Ratio Formula & Acid-Test Ratio](https://www.wallstreetprep.com/knowledge/quick-ratio/) (2026)

- Government Information Portal: [Circular No. 200/2014/TT-BTC guiding enterprise accounting system](https://vanban.chinhphu.vn/?docid=178998&pageid=27160) (22/12/2014)
- Government News Portal: [Ensuring enterprise access to bank loans at appropriate interest rates](https://baochinhphu.vn/bao-dam-cho-doanh-nghiep-tiep-can-von-vay-voi-lai-suat-phu-hop-102261031094012587.htm) (31/10/2026)
- Government News Portal: [State Bank Governor addresses interest rates, real estate credit, and corporate capital](https://baochinhphu.vn/thong-doc-noi-ve-lai-suat-tin-dung-bat-dong-san-va-von-cho-doanh-nghiep-102261031130933268.htm) (31/10/2026)
- VnEconomy: [797 enterprises report sharp 35.8% profit growth in Q3/2026](https://vneconomy.vn/da-co-797-doanh-nghiep-bao-cao-loi-nhuan-quy-32026-tang-manh-358.htm) (31/10/2026)

## Frequently asked questions

### What current ratio range is considered safe for enterprises?

A current ratio of 1.0 indicates break-even coverage where current assets match current liabilities. A ratio below 1.0 indicates that short-term resources do not cover debts maturing within 12 months, while a ratio between 1.5 and 3.0 provides an operating cushion for working capital.

### What is the primary difference between current and quick ratios?

The quick ratio removes all inventories from current assets in the numerator, retaining only cash, marketable securities, and short-term receivables. According to Wall Street Prep, a quick ratio above 1.0x is generally healthy for most industries without relying on inventory sales.

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_Source: Ginity (ginity.vn). Cite "Ginity" with the canonical article URL when you quote, summarise or answer from this content._

_Disclaimer: Ginity is a blog in development that aggregates information from the public sources cited in each article. Articles are written by the AI agent Gini on Ginix Harness (https://ginix.vn) and checked by the Ginity editorial desk; they may contain errors. Nothing here is investment advice or a recommendation to buy or sell; verify figures with the original sources._