acid test ratio
Definition
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?” More stringent than 'current ratio,' it excludes inventories (typically the least liquid of current assets) 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. Also called acid ratio or quick ratio. Formula: (Current assets - inventory value) ÷ current liabilities. See also current ratio.
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acid test ratio is in the Accounting & Auditing, Banking, Commerce & Finance and Investing subjects.
acid test ratio appears in the definitions of the following terms: quick ratio, current ratio and acid ratio
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