Finance Definition
Acid-Test Ratio
📈 Investing
intermediate

Quick Definition

The Acid-Test Ratio, also known as the quick ratio, measures a company's ability to meet its short-term obligations with its most liquid assets without relying on inventory.

Formula

Acid-Test Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

Examples

  • 1A company with $100,000 in liquid assets and $50,000 in current liabilities has an Acid-Test Ratio of 2.0, indicating strong liquidity.
  • 2During a financial audit, a firm's Acid-Test Ratio is calculated to assess its immediate financial health.
  • 3Investors often look at the Acid-Test Ratio of a startup to determine if it can cover short-term debts during its initial growth phase.

Tags

liquidityfinancial-ratioscorporate-financefinancial-analysis
Related Terms
Other terms you might find helpful
Current Ratio
The current ratio is a liquidity ratio that measures a company's ability to pay off its short-term liabilities with its short-term assets.
Liquidity Ratio
Liquidity ratios measure a company's ability to meet its short-term obligations using its most liquid assets.
Quick Info
Category:Investing
Difficulty:intermediate
Last Updated:6/17/2025