Acid-Test Ratio

Importance: 0.57

Is a company: no

Is a proper noun: no

Synonyms

  • liability test
  • asset and liability score

Definition of Acid-Test Ratio

  1. 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.

Related Terms and Acronyms

  • 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.
  • Overall Liquidity Ratio Definition,
    • A method of determining how easily and quickly a company can sell off assets to pay off its debts.
  • Current Ratio Definition,
    • A method of determining an entity's liquidity and its ability to cover its current liabilities.
  • Long-term Liabilities Definition,
    • Money owed over a period longer than 12 months, such as mortgages, bank loans, and other obligations.
  • 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.
Compare. Calculate. Apply today.
Compare Mortgage RatesMortgage CalculatorsApply for a Mortgage