Acid Test Ratio

The Acid Test Ratio, also known as the Quick Ratio, is a stringent measure of a company's short-term liquidity. It calculates whether a company can meet its immediate liabilities using only its most liquid assets—cash, marketable securities, and receivables—excluding inventory, which may not be quickly convertible to cash. Acid Test Ratio = (Current Assets – Inventory) ÷ Current Liabilities. A ratio of 1 or above is generally considered healthy, while a lower ratio may indicate potential liquidity concerns.