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In finance, the quick ratio, also known as the acid-test ratio, is a liquidity ratio that measures the ability of a company to use near-cash assets (or 'quick' assets) to extinguish or retire current liabilities immediately. It is the ratio between quick assets and current liabilities. A normal liquid ratio is considered to be 1:1.
Financial analysts also employ the "acid test" nickname for the quick ratio method, which assesses the liquidity of a business. The term "acid test" took on a different meaning in the realm of experiences with the psychedelic drug LSD, [9] popularized by the Merry Pranksters. This association stems from the drug's colloquial name, "acid" (which ...
Quick ratio (also known as an acid test) or current ratio, accounting ratios used to determine the liquidity of a business entity; In accounting, the liquidity ratio expresses a company's ability to repay short-term creditors out of its total cash. It is the result of dividing the total cash by short-term borrowings.
Current ratio vs. quick ratio vs. debt-to-equity. ... A more conservative measure of liquidity is the quick ratio — also known as the acid-test ratio — which compares cash and cash equivalents ...
The quick ratio is calculated by deducting inventories and prepayments from current assets and then dividing by current liabilities, giving a measure of the ability to meet current liabilities from assets that can be readily sold. A better way for a trading corporation to meet liabilities is from cash flows, rather than through asset sales, so;
Acid-test ratio (Quick ratio) [18] Current Assets − (Inventories + Prepayments) / Current Liabilities Cash ratio [18] Cash and Marketable Securities / Current Liabilities Operating cash flow ratio Operating Cash Flow / Total Debts Net working capital to sales ratio [19] Current Assets - Current Liabilities / Sales
Acid test is a qualitative chemical or metallurgical assay which uses acid, ... Quick ratio, or acid-test ratio, a type of financial liquidity ratio; Acid Tests, ...
The current ratio is an indication of a firm's accounting liquidity. Acceptable current ratios vary across industries. [1] Generally, high current ratio are regarded as better than low current ratios, as an indication of whether a company can pay a creditor back. However, if a company's current ratio is too high, it may indicate that the ...