quick ratio (redirected from Acid Test (Liquidity Ratio))

Quick Ratio

An indicator of a company's financial strength. It is calculated as:

Notes:

Basically, it is a measure of how quickly a company's assets can be turned in cash.

See also: Current Assets, Current Liabilities, Inventory

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Quick ratio

Indicator of a company's financial strength (or weakness). Calculated by taking current assets less inventories, divided by current liabilities. This ratio provides information regarding the firm's liquidity and ability to meet its obligations. Also called the Acid test ratio.

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quick ratio

A relatively severe test of a company's liquidity and its ability to meet short-term obligations. The quick ratio is calculated by dividing all current assets with the exception of inventory by current liabilities. Inventory is excluded on the basis that it is the least liquid current asset. A relatively high quick ratio indicates conservative management and the ability to satisfy short-term obligations. Also called acid-test ratio. Compare cash ratio. See also current ratio, net quick assets.