Acid-Test Ratio
Definition
- A ratio used to determine if a company has enough liquidity in quick assets (or short-term assets) to pay its current liabilities without selling inventory. The acid-test ratio is calculated by dividing the sum of a company's cash, accounts receivable and quick assets by its current liabilities. A company with an acid-test ratio less than 1 cannot cover its current liabilities without selling inventory.
Synonyms
liability test, asset and liability score
Related Terms and Acronyms
- Current Ratio — Definition,
- A method of determining an entity's liquidity and its ability to cover its current liabilities.
- Liabilities — Definition,
- A borrower's debts and legal obligations.
- Liquid Assets — Definition,
- Cash and other property that can be converted quickly and easily into cash.
- Long-term Liabilities — Definition,
- Money owed over a period longer than 12 months, such as mortgages, bank loans, and other obligations.
- Overall Liquidity Ratio — Definition,
- A method of determining how easily and quickly a company can sell off assets to pay off its debts.
- Short-term Liabilities — Definition,
- Money that you have to pay in less than 12 months, including wages, short-term loans, taxes, credit card balances and long-term loans.
- Solvency — Definition,
- To be able to meet one's financial liabilities in the short or long term.
