What is acid test ratio ?
1 answersQuestion asked ( August 06, 2009 , Shopping / Finance )
I’m working on my summer project for my degree. I had opted for international business as my core specialization, but also opted for finance as my minor. Now, i’m working on an exercise of ratio analysis and would like to understand what acid test ratio is?
Answers to : acid test...
Answer
Hi. Acid test ratio is also called quick ratio in financial terms. Quick ratio as the name suggests is a ratio that provides a quick peek into the liquidity status of a company. Acid Test / Quick ratio is to analyze and understand if a firm has enough short term assets to meet its short term liability obligations. Ideally acid test ratio for every sound company should be greater than 1.
Acid test ratio= Quick assets/ current liabilities
This ratio takes into account the current assets which can be quickly liquidated. Generally, inventories are excluded as they are least liquid component of current assets.
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