Acid test ratio

The “acid test ratio” (also know as the “quick ratio”) is an accounting ratio that is concerned with business liquidity. It is defined as current assets (excluding stocks) divided by creditors falling due within one year. The acid test ratio is designed to test the short term solvency of a business, in a way similar to the current ratio. Stocks are excluded from current assets on the basis that it can often take several months to convert stocks into cash.

 

reference: Business Studies / Accounting. Accounts & Finance Glossary. Jim Riley BA(Hons) MBA FCA // tutor2u

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