another name for the quick ratio is
Copyright © 2010, Investopedia.com - All rights reserved. current and quick ratios as indicators of a company's liquidity can be misleading. c) Cash Ratio. The cash ratio is an indicator of a company's liquidity that further refines both the. current ratio and the quick ratio by measuring the amount of cash, cash. What is the 'Acid-Test Ratio'. The acid-test ratio is a strong indicator of whether a firm has sufficient short-term assets to cover its immediate liabilities. Commonly known as the quick ratio, this metric is more robust than the current ratio, also known as the working capital ratio, since it ignores illiquid assets such as inventory. Calculated by: The quick ratio is often called the acid test ratio in reference to the historical use of acid to test metals for gold by the early miners. If the metal passed the acid test, it was pure gold. If metal failed the acid test by corroding from the acid, it was a base metal and of no value. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy. To see each answer, press or click on the blue Unscramble button. If you have difficulty answering the following questions, learn more about this topic by reading our Financial Ratios (Explanation). Liquidity Ratios. Liquidity ratios provide information about a firm's ability to meet its short-term financial obligations. They are of particular interest to those extending short-term credit to the firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio) and the quick ratio. The cash ratio is the most stringent and conservative of the three short-. term liquidity ratios (current, quick and cash). It only looks at the most liquid. short-term assets of the company, which are those that can be most easily used. The concept behind this ratio is to ascertain whether a company's short-term. assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current. portion of term debt, payables, accrued expenses and taxes). Quick ratio (also known as asset test ratio) is a liquidity ratio which measures the dollars of liquid current assets available per dollar of current liabilities. Liquid current assets are current assets which can be quickly converted to cash without any significant decrease in their value. Quick Ratio. The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets. Quick assets are current assets that can be converted to cash within 90 days or in the short-term.
Acid-Test Ratio