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Acid-Test Ratio

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







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