Acid Test Ratio

Definition - What does Acid Test Ratio mean?

Acid Test Ratio is a measure of corporate liquidity found by subtracting inventory from current assets and dividing the result by the current liabilities.

Testopedia explains Acid Test Ratio

The acid test is also known as the "quick ratio" because when inventory is deducted from a company's current assets the remaining assets are referred to as the quick assets. I.e.: quick assets are cash and its equivalents; accounts receivable; prepaid expenses: all of which can be converted into cash quickly and easily. When the quick assets are divided by the current liabilities the result shows how many times over the company could pay their current liabilities if need be.

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