Definition of Acid Test Ratio from the PharmacyDictionary.in
Acid Test Ratio
Synonyms of Acid Test Ratio
The Acid Test Ratio, also known as the Quick Ratio, is a financial metric used to assess a companys short-term liquidity position. Its calculated as:
Acid Test Ratio=(Current Assets?Inventories?)/Current Liabilities
This ratio provides a measure of a firms ability to meet its short-term obligations using its most liquid assets (i.e., excluding inventories). A higher Acid Test Ratio indicates a stronger liquidity position, suggesting that the company is more capable of paying off its short-term debts as they come due. Its a crucial tool for investors, creditors, and financial analysts when evaluating a companys financial health.
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