Acid Test Ratio

Acid test ratio also known as quick ratio is a liquidity ratio that measures the company’s ability to pay-off its current liabilities when they are due with the combination of quick assets such as marketable securities, cash and trade receivables. Quick assets are those assets which the company can convert into cash within 90 days or in the short-term.

Acid Test Ratio = (Marketable Securities + Cash + Trade Receivables) / Current liabilities