Acid Test Ratio interpretation
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.
An Acid test ratio of 0.75:1 or greater is preferred.
Acid test ratio is a more conservative look at a company's liquidity because is taking in the consideration only the most liquid assets (cash and marketable securities).
Acid test ratio measures to which extend financial obligations can be liquidated immediately, because it eliminates any unknowns surrounding receivables.