acid-test ratio

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Acid-Test Ratio

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. The acid-test ratio thus measures a company's ability to meet obligations in a worst-case scenario. It is also called the quick ratio.

acid-test ratio

current ratio

or

acid-test ratio

an accounting measure of a firm's ability to pay its short-term liabilities out of its quickly-realizable CURRENT ASSETS, which expresses the firm's liquid current assets (DEBTORS plus cash) as a ratio of CURRENT LIABILITIES. Sometimes called the ‘quick ratio’, this is a more stringent test of liquidity than the WORKING CAPITAL RATIO, because it excludes STOCK from CURRENT ASSETS on the grounds that STOCKS cannot be as readily convertible into cash to meet short-term debts as can DEBTORS where the goods or services have already been sold and only collecting the money remains.
References in periodicals archive ?
I am proud to have helped to fight to expand Medicaid and eliminate unfair asset tests while advocating for policies that will fund our schools and strengthen our middle class.
1471-5T(e)(5)(i) (B)(1), an expanded affiliated group (EAG) will be a nonfinancial group if the EAG satisfies certain passive income and asset tests (among other things).
Use of credit agencies wedded to net tangible asset tests undermines these very policies by disadvantaging asset-light Welsh companies with the ambition to borrow to invest in growth.
The House bill imposes tougher income and asset tests that would cause an estimated 3 million low-income Americans to lose their food stamps.
Second, Medicaid has attempted to limit the abuse of the system by using increasingly stringent and comprehensive asset tests to determine eligibility.
At least 35 states have eliminated asset tests, four recently raised their minimums to $5,000 and 10 states--Alaska, Arkansas, Indiana, Kansas, Missouri, South Dakota, Tennessee, Utah, Virginia and Wyoming--have a low threshold of $2,000 in assets, according to the Pittsburgh Post-Gazette.
She also recommended that law-makers change policies to eliminate asset tests when determining eligibility for some federal benefits.
Letter Ruling 201034010 is the third private letter ruling in which the IRS has concluded that apparent data center buildings, including their structural components, constitute real property for purposes of the REIT asset tests.
Details vary, but categorical eligibility typically means applicants can have gross incomes of up to 200 percent of the poverty level, aren't subject to asset tests, and don't need to verify their net incomes.
The mortgage process has also been made easier as a result of the bank having developed two UAE first-in-market assessment criteria specifically tailored to this premium segment - liquid asset tests and asset backed lending.
Public policy experts and non-governmental groups say many household asset tests, which vary from state to state, were designed to prevent low-income families from gaming the system but are now hindering many working poor from transitioning into middle class by accumulating emergency funds or retirement nest eggs.