Acid Test Ratio

The acid test ratio, also known as the quick ratio, is a measure that helps a business understand if it has enough short-term assets to pay off its current liabilities.

The acid test ratio can be calculated using the below formula.

Acid Test = (Cash and its Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities

An acid test ratio of 1.0 or more denotes that a company can pay its short-term liabilities, whereas a ratio of less than 1.0 denotes it might struggle to pay them.