Acid test ratio

Acid test ratio,

Definition of Acid test ratio:

  1. Key measure of a firms liquidity, it answers the question Can this firm meet its current obligations from its liquid assets if suddenly all sales stop? More stringent than current ratio, it excludes inventories (typically the least liquid of current assets) to concentrate on the more liquid assets of the firm. Usually an acid test ratio of 1.0 or higher is considered satisfactory by lenders and investors. Also called acid ratio or quick ratio. Formula: (Current assets - inventory value) รท current liabilities. See also current ratio.

How to use Acid test ratio in a sentence?

  1. During the meeting, the manager mentioned the importance of conducting a regular acid test ratio to ensure that the company would always stay afloat as a business.
  2. You need to perform an acid test ratio on any new chemicals to make sure that they wont cause a bad reaction with the old.
  3. The acid test ratio we were performing was going really well and I was looking forward to the next part of the process.

Meaning of Acid test ratio & Acid test ratio Definition