What does Acid Test Ratio mean?

Acid Test Ratio meaning in Finance Dictionary

a monetary ratio similar to the present proportion or working-capital proportion, defined as: present possessions minus shares split by current debts. It shows whether a company can pay its debts if it needed seriously to satisfy creditors nonetheless it had no time at all to offer any of its possessions.

Acid Test Ratio meaning in Law Dictionary

exchangeability measure that tests the capacity to protect loss. Its an improved measure compared to the current ratio. If its high its great for loan providers and investors. AKA acid proportion or quick ration. REfer to current ratio.

Acid Test Ratio meaning in Business Dictionary

crucial way of measuring a company's liquidity, it answers the question "Can this firm meet its present responsibilities from the fluid possessions if suddenly all sales stop?" More stringent than 'current ratio,' it excludes stocks (typically the least fluid of present possessions) to concentrate regarding more liquid assets regarding the company. Often an acid test proportion of 1.0 or more is considered satisfactory by loan providers and people. Also known as acid ratio or quick proportion. Formula: (present possessions - inventory price) ÷ existing debts. See additionally existing ratio.