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Indicator of a company's financial strength (or weakness). Calculated by taking current assets less inventories, divided by current liabilities. This ratio provides information regarding the firm's liquidity and ability to meet its obligations. Also called the Acid test ratio.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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
A relatively severe test of a company's liquidity and its ability to meet short-term obligations. The quick ratio is calculated by dividing all current assets with the exception of inventory by current liabilities. Inventory is excluded on the basis that it is the least liquid current asset. A relatively high quick ratio indicates conservative management and the ability to satisfy short-term obligations. Also called acid-test ratio. Compare cash ratio. See also current ratio, net quick assets.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
quick ratiosee CURRENT RATIO.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson