What it is: The quick ratio is a liquidity ratio that measures a company's ability to meet short-term financial obligations using its most liquid assets. SaaS companies may also refer to a growth efficiency metric relating to monthly recurring revenue (MRR).
Why it is important: The quick ratio provides insights into a company's short-term liquidity and its ability to cover immediate financial obligations without relying on inventory or longer-term assets. For SaaS companies, the term "quick ratio" can also refer to a metric that measures growth efficiency by comparing MRR growth to the resources invested in sales and marketing.
Formulas:
Quick Ratio (Liquidity): Quick Ratio = (Cash + Cash Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities
Quick Ratio (SaaS): Quick Ratio = MRR Growth / Sales and Marketing Expenses
How to use it in the context of startups: Startups can use the quick ratio to assess their liquidity position and short-term financial health. A higher quick ratio indicates better liquidity and a greater ability to meet short-term obligations. SaaS companies can utilize the quick ratio as a growth efficiency metric to evaluate the effectiveness of their sales and marketing investments in generating MRR growth.