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 ?
A Qualified Opportunity Fund must file a Form 8996 with its federal income tax return for annual reporting of compliance with the 90 percent Asset Test. Qualified Opportunity Businesses have similar qualification safe harbors, such as at least 50 percent of total wages or hours of employees and independent contractors are performed within and opportunity zone.
It is expected that taxpayers will use Form 8996 both for initial self-certification and for annual reporting of compliance with the 90% asset test of IRC section 1400Z-2(d)(l); Form 8996 should be attached to the taxpayer's federal income tax return for the relevant years.
Another important question answered by Treasury is whether a QOF may hold cash reserves in order to acquire, construct or rehabilitate tangible property in a QOZ without violating the 90% asset test. For this purpose, the guidance established a safe harbor for a reasonable amount of working capital.
There is no asset test at the time the stock is sold, so a company can still be a "qualified small business" even if at the time of the stock sale the company's worth exceeds $50 million.
"To go from a 100-participant test to a $50 million asset test is a major change, and it goes the opposite direction of what the Chamber and other small-business organizations were asking for."
Elimination of the Asset Test for the QMB and SLIMB Programs.
* (ASTM G66-99(2005)e1) - Visual Assessment of Exfoliation Corrosion Susceptibility of 5XXX Series Aluminum Alloys (ASSET Test)
These changes will come into effect on 1 April 2015 (with one exception that the increase of the asset test applicable to 'assessed' Professional Clients from US $500,000 to US $1 million, will not come into effect until 1 April 2016).
This relates to the increase of the asset test applicable to 'assessed' Professional Clients from $500,000 to $1 million, which will come into effect on 1 April 2016."
The team also found that Medicaid beneficiaries in states that had an "asset test" (which considers an individual's savings, property, or other items of worth to determine whether he or she could enroll in Medicaid) were less likely to be screened for cancer.
It is unclear whether assets capable of producing royalties if licensed should be treated as passive assets under the nonfinancial group passive asset test if they are not, in fact, licensed.
Add to this the change in the asset test on July 1 this year to access services such as community age care packages, which up to now have seen people receive care in their home with subsidies provided by government.