Acid Test Ratio calculator
Acid Test Ratio is an indicator of company's short-term liquidity. It measures the ability to use its immediate assets (cash, cash equivalents and marketable securities) to pay its current liabilities. Acid Test Ratio formula is:
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Interpretation of Acid Test Ratio
An Acid test ratio of 0.75:1 or greater is preferred.
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Definitions and terms used in the Acid Test Ratio calculator
- Cash: refers to money in the physical form of currency. Cash includes money in the cash pan, petty cash, cash in the locker, bank account and customers' checks.
- Marketable Security: a near-cash (liquid) asset in the form of equity or debt instrument (share/stock, bond or note) that is listed on an exchange and can be readily bought or sold.
- Current liabilities (short term debt): obligations or debts that are due within one fiscal year or the operating cycle. For example, accounts payable, accrued liabilities, dividends, unpaid taxes and other debts that are due within one year.
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