The Quick Ratio, also known as the acid test, is a crucial liquidity metric, showing a company's ability to cover short-term liabilities with easily convertible assets. It's calculated by subtracting inventory and prepaid expenses from current assets, then dividing by current liabilities. This formula excludes inventory due to its slower conversion to cash. 

For example, with $8 million in current assets, $2 million in inventory and prepaid expenses, and $4 million in current liabilities, XYZ has a quick ratio of 1.5. This suggests adequate liquidity. A ratio below 1 signals potential difficulties in meeting short-term obligations, possibly necessitating capital raising or other measures.