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 ?
So pull out your game playbook (budget), print out your year-to-date profit and loss statement, balance sheet, financials for the same time period in 2012, and a copy of s your key performance ratios like gross margin, inventory turns, current and quick ratios, accounts receivable aging, ROI, to name a few.
In a similar manner, current and quick ratios declined marginally but stayed quite high.
Nevertheless, in accounting and auditing textbooks, the current and quick ratios continue to be the focus of liquidity analysis.
Students will identify the driver of the differences in the current and quick ratios, and will explore issues in managing working capital.
Several traditional financial ratios (the current ratio and quick ratios, days' sales in inventory, debt and debt-equity ratios, return on assets, and Altman Z-score) were then calculated based on the equations summarized below.
Consistent with the financial distress and tax hypotheses, general derivatives users have both higher leverage and income tax credits and lower quick ratios and less tangible assets.
In other words, 1987-1991 quick ratios were averaged to predict the 1994 CII, while 1991-1995 quick ratios were averaged to predict the 1998 CII.
To calculate quick ratios, HFN took retailers' current assets, subtracted their inventories and then divided the results by current liabilities.
In this analysis, we use the current and quick ratios.
Cash flow: Margin, Days Sales Outstanding (DSO), growth, current and quick ratios
NEW YORK-Top home furnishings retailers were less liquid of late, as quick ratios slid for the recently completed fiscal fourth quarter.