Acid Test Ratio

Key measure of a firm’s liquidity, it answers the question :

” Can this firm meet its current obligations from its liquid assets if suddenly all sales stop? ”

This ratio is more stringent than ‘ current ratio ‘, its exclude inventories to concentrate on the more liquid assets of the firm. Usually an acid test ratio of 1.0 or higher is considered satisfactory by lenders and investors. This ratio is also known as acid ratio and quick ratio.

Formula for Calculating Acid Test Ratio is

Acid Test Ratio = ( Current Assets – Inventory Value ) / Current Liabilities


One thought on “Acid Test Ratio

  1. Pingback: Current Ratio | MBA Bhejha Fry

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s