Final answer:
A low quick ratio suggests a company might face difficulties in meeting its short-term obligations without selling inventory or acquiring financing, indicating lower liquidity.
Step-by-step explanation:
The quick ratio, also known as the acid-test ratio, is a measure of a company's ability to meet its short-term obligations with its most liquid assets. It is calculated by taking the sum of cash, marketable securities, and accounts receivables, then dividing by current liabilities. Unlike the current ratio, the quick ratio does not include inventory in its calculation because inventory is not always readily convertible to cash.
A low quick ratio indicates that a company may struggle to pay off its short-term liabilities promptly without selling inventory or obtaining additional financing, suggesting lower liquidity. However, the acceptable level of the quick ratio can vary by industry, and some businesses operate successfully with a lower quick ratio due to faster inventory turnover or more reliable cash flows.
In summary, a low quick ratio suggests that a company's liquidity is not as robust, which could pose a risk in the immediate term if it faces sudden liabilities or unexpected cash flow disruptions.