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 ?
ADEQUATE BALANCE SHEET: Balance sheet ratios remain consistent with the rating category.
These facilities agreements will not have any major impact on the key balance sheet ratios or the existing financial target guidance of Sponda in terms of equity ratio, the company added.
The balance sheet ratios are still within the target ranges and the Group's rating remains unchanged.
Demerjian (2011) reported that the balance sheet ratios which were included in more than 80% of debt covenant contracts in 1996 had declined to a mere 37% of contracts in 2007, conversely, income statement ratios for the same period had increased from 74% to 82%.
However, major balance sheet ratios were maintained at good levels, with asset quality essentially unchanged and the capital adequacy ratio (CAR) remaining solid.
FBME continues to comply with European Capital Adequacy and Liquidity Standards and other healthy balance sheet ratios.
Mohammed Abdulla Alqubaisi, chairman of Finance House said: "Our steady all-round growth in business volumes and profitability alongside stable and healthy balance sheet ratios clearly manifest the resilience of our business model and our ability to adjust swiftly to changing market conditions."
Mohammed Abdulla Alqubaisi, chairman of Finance House, said: "Our steady all-round growth in business volumes and profitability alongside stable and healthy balance sheet ratios clearly manifest the resilience of our business model and our ability to adjust swiftly to changing market conditions.
"The performance of Dubai Islamic Bank in the third quarter of 2012 was notable for delivering strong results while continuing with its conservative approach to provisioning, as demonstrated by increases in key balance sheet ratios," saidy Mohammad Ebrahim Al Shaibani, Director-General of His Highness The Ruler's Court of Dubai and Chairman of Dubai Islamic Bank.
Thus, the comparisons between uninsured and insured banks must focus primarily on major balance sheet ratios for 1934.
The study, which is based on information gathered from more than 30 prominent architectural firms, includes a detailed analysis of utilization, billing multiples, overhead rates, balance sheet ratios and historical trends for 2010, all of which are compared with national standards.
The bank's credit quality has stabilised and leading asset quality indicators have improved, while the group continues to strengthen balance sheet ratios, he said.