Overview

Acid-Test Ratio, also referred to as the quick ratio, measures the short-term liquidity of a company by looking at how well its short-term assets can be used to cover its current financial obligations. The formula for calculating the acid-test ratio is:

Acid-Test Ratio = (Cash and Cash Equivalents + Marketable Securities + Accounts Receivables) / Current Liabilities

or alternatively

Acid-Test Ratio = (Current Assets - Inventories) / Current Liabilities

The second formula assumes that inventories are materials and goods held by a company which cannot be easily converted into cash.

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