Topics

Acid-Test Ratio

The acid-test ratio, or quick ratio, measures a company’s short-term liquidity by assessing its ability to pay current liabilities without relying on inventory sales. It’s calculated as:

(Current Assets – Inventory) / Current Liabilities

A ratio of 1 or higher typically indicates good financial health.

Example:Apple Inc. had quick assets (cash, marketable securities, and receivables) of $90 billion and current liabilities of $70 billion in a given quarter. Its acid-test ratio would be $90B / $70B = 1.29, meaning Apple could cover its short-term obligations without needing to sell inventory, signaling strong liquidity.

© 2002-2025 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.

Back to top