Acid-Test Ratio Definition
Used to measure a company’s ability to pay its liabilities using assets that are cash or very liquid. Computed by subtracting current assets by inventory, then divide by current liabilities. A ratio of 1.0 or greater may be recommend, but an acceptable value will largely depend on the industry a company is in. Also called Quick Ratio.
Acid-Test Ratio = Current Assets – Inventory / Current Liabilities