acid-test ratio definition
Meaning of “acid test ratio” in the English Dictionary. acid test ratio in Business English. acid test rationoun [ S ] › a measure of a company's ability to pay costs and make necessary payments in the near future. It is calculated by adding together its cash and assets that can easily be changed into cash, and dividing the total by the number of debts that it has. Meaning of “acid test ratio” in the English Dictionary. See all translations. uk ​ us ​ also acid ratio, also current ratio, also liquid ratio, also liquidity ratio, also quick ratio, also quick-assets ratio ACCOUNTING. › a measure of a company's ability to pay costs and make necessary payments in the near future. A measure of a company's ability to meet its short-term obligations using its most liquid assets. It is calculated by subtracting inventories from current assets and dividing the quantity by its current liabilities. A higher acid-test ratio indicates greater short-term financial health. The acid-test ratio is more conservative than the current ratio, which measures much the same thing, because the current ratio excludes the value of inventory. This is because inventory can be less liquid than other current assets. What is the 'Quick Ratio'. The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows: What is the 'Quick Ratio'. The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. The quick ratio measures the dollar amount of liquid assets available for each dollar of current liabilities. In a sense, the acid test ratio is a quiz to see how liquid a company is by comparing the current liabilities with the quick assets. If a company has enough cash and cash equivalents to pay off its current debt, creditors shouldnt be worried about being paid. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company's liquidity position. Also known as the “acid-test ratio or quick assets ratio.. Acid Test Ratio. The acid test ratio, sometimes called the quick ratio, is a liquidity ratio that measures a companys ability to pay off its current debts with only quick assets. Quick assets, sometimes called cash equivalents, are current assets that can be quickly and easily converted into cash in the current period. The ratio of current assets less inventories to total current liabilities. This ratio is the most stringent measure of how well the company is covering its short-term obligations, since the ratio only considers that part of current assets which can be turned into cash immediately (thus the exclusion of inventories). acid test rationoun [ S ] uk ​ us ​ also acid ratio, also current ratio, also liquid ratio, also liquidity ratio, also quick ratio, also quick-assets ratio ACCOUNTING. › a measure of a company's ability to pay costs and make necessary payments in the near future.
It is a liquidity ratio that measures a company's ability to pay off its current debts with only quick assets.