Acid-test (quick) ratio

Definition

The acid-test, or quick ratio, measures a company's ability to pay its short-term liabilities with its most liquid assets, excluding inventory. It is calculated by dividing the sum of cash, marketable securities, and receivables by the current liabilities.

Related terms

Current Ratio:

This measures a company’s ability to pay off its short-term liabilities with its short-term assets.

Liquidity:

Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its value.

Marketable Securities:

These are liquid financial instruments that can be quickly converted into cash at a reasonable price