What is the Acid Test Ratio?
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The Acid Test Ratio, also known as the Quick Ratio, measures how well a company could cover its current liabilities if they came due immediately. It is calculated as (Cash + Short-Term Investments + Net Accounts Receivable) divided by Current Liabilities. A ratio of 1 or higher is generally considered healthy.
It's a stricter version of the current ratio that leaves out inventory. Think about which assets a company could turn into cash almost instantly to pay bills due right now.