Municipalities throughout the country recorded the acid test ratio
of 1,1:1 during the two financial years ended 30 June 2014 and 30 June 2015.
It was desired to measure the liquidity of corporations by using current ratio (%), acid test ratio and cash ratio (%).
Acid Test Ratio = Current Assets - Inventories/Short Term Liabilities
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.
Acid test ratio = Current assets--Inventory/Current liabilities (Elliott, B.
Acid test ratio is derived form a current ratio and represents a stricter view on company's liquidity because current assets that cannot be converted into cash quickly as for example inventories or doubtful debts are not contained in this ratio.
At first glance, the world's largest company's acid test ratio of 0.
couldn't hurt its standing with lenders if that acid test ratio of 0.
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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.