acid test ratio

Acid test ratio

Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid items to current liabilities.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

acid test ratio

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
References in periodicals archive ?
It was desired to measure the liquidity of corporations by using current ratio (%), acid test ratio and cash ratio (%).
* Acid Test Ratio: It shows the ability to pay short-term liabilities with current assets but without inventories.
The ten ratios that were used for conducting firm performance analysis included Acid Test Ratio, Financial Expenses as Percent of Sales Ratio, Current Ratio, Debt to Equity Ratio, Return on Assets Ratio, Return on Equity Ratio, Dividend Cover Ratio, Net Profit Margin Ratio, Earnings per Share after Tax Ratio, and Break-Up Value Shares Ratio.
Predictors: (Constant), Break/up value shares, Debt/ Equity ratio, Acid test Ratio, ROE, Fin Exp of sales, EPS, Current ratio, NPM, ROA b.
where Z is discriminant score (Z-score); EPS is earning per share; DR is total liability to total assets (debt ratio); ROE is return on equity (return on shareholders' equity); QR is acid test ratio (quick ratio); PBTP is profit before tax to paid-in capital (return on capital); ROA is return on assets (Return on total assets); OP is operating profit; OEOI is operating expense to operating income.
Acid test ratio = Current assets--Inventory/Current liabilities (Elliott, B., Elliott, J.
At first glance, the world's largest company's acid test ratio of 0.2 looks a lot like its prices -- improbably low.
Finally, the site's glossary is an excellent tool that defines terms ranging from acid test ratio and degenerate swap, to natural hedge and bed and breakfast (not what you think).
averages averages Current ratio 1.2 1.4 1.5 Acid test ratio .8 1.1 1.1 Debt/equity ratio 1.1 1.5 1.9 Receivables age 55 days 42 days 57 days Inventory age 73 days 50 days 48 days Working capital/revenues 8% 8.5% 9.7%
Frequently used are the current ratio (current assets divided by current liabilities) and the quick or acid test ratio (quick assets, such as cash, A/R and marketable securities divided by current liabilities).
It is reasonable to set specific acid test ratio objectives and regularly monitor the cash position with this simple calculation.