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Acid Test Ratio Calculator

The Acid Test Ratio calculator assesses a company's immediate short-term liquidity by comparing its most liquid assets to current liabilities. It's an essential tool for analysts, investors, and business owners to evaluate financial health without relying on inventory.

Quick Ratio (Acid Test) Calculator

Input Fields
C
$
Immediate cash or liquid assets on hand
M
$
Liquid investments that can be quickly converted to cash
AR
$
Money owed to the business by customers
CL
$
Total short-term financial obligations

Quick Ratio Formula

Formula
$$\text{Acid Test Ratio} = \frac{\text{Cash} + \text{Accounts Receivable} + \text{Short-Term Investments}}{\text{Current Liabilities}}$$

Explanation:
This ratio measures a company’s ability to pay off current obligations without relying on the sale of inventory. A ratio of 1 or higher typically indicates good short-term financial health.

Also known as the Quick Ratio, the Acid Test Ratio excludes inventory from assets because it may not be easily liquidated. It is particularly useful in industries where inventory turnover is slow or inventory is difficult to convert to cash.

Example Variables:

  • Cash: $10,000
  • Accounts Receivable: $5,000
  • Short-Term Investments: $3,000
  • Current Liabilities: $12,000

Calculation:
(10,000 + 5,000 + 3,000) / 12,000 = 1.5

A result > 1 implies the company can cover its current liabilities without selling inventory.

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