Find Meaning Of Acid Test Ratio?
What Is Meaning Of Acid Test Ratio?
The Meaning Of Acid Test Ratio In English,
The term acid test ratio is also called the “Quick Ratio”. The acid test ratio or the quick ratio is a type of liquidity ratio which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately.
In simpler words, the acid test ratio is a ratio between quickly available or liquid assets and current liabilities. A company that has less than 1 acid test ratio or quick ratio cannot currently fully pay back its current liabilities.
The normal liquid ratio is considered to be 1:1. This ratio is considered to be much better and reliable as a tool for assessment of the liquidity position of firms. This acid test ratio or quick ratio is calculated by the specific formula which is given as follows:
ACID TEST RATIO(Quick Ratio)=cash and cash equivalent+marketable securities+accounts receivable Current liabilities
Or it can be also written as
Quick ratio=Liquid assets
Quick liabilities
Ratios are the tests of viability for business entities but do not give a complete picture of the business’s health. The general acid test ratio or quick ratio is 1:1 or more than that. It depends on the industry. The greater the ratio the greater the company.
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What Are The Synonyms Of Acid Test Ratio?
Synonyms Of Acid Test Ratio Are:
- Not Available The Synonyms Of Acid Test Ratio
What Are The Antonyms Of Acid Test Ratio?
Antonyms Of Acid Test Ratio Are:
- Not Available The Antonyms Of Acid Test Ratio
What Are The Related Words Of Acid Test Ratio?
Related Words Of Acid Test Ratio Are:
- Not Available The Related Words Of Acid Test Ratio
What Is The Noun Form Of Acid Test Ratio?
Noun Form Of Acid Test Ratio Is:
- Not Available The Noun Form Of Acid Test Ratio
What Is The Verb Form Of Acid Test Ratio?
Verb Form Of Acid Test Ratio Is:
- Not Available The Verb Form Of Acid Test Ratio
What Is The Adjective Of Acid Test Ratio?
Adjective Of Acid Test Ratio Is:
- Not Available The Adjective Of Acid Test Ratio
FAQ
What Does An Acid-Test Ratio Of 1.5 Mean?
An example of the acid test ratio can be seen in the table below. In this example, the acid test ratio is 1.5, indicating that the company has enough liquid assets to cover its short-term liabilities.
Is a higher or lower acid-test ratio better?
Interpretation of the Acid-Test Ratio
The higher the ratio, the better the company’s liquidity and overall financial health. A ratio of 2 implies that the company owns $2 of liquid assets to cover each $1 of current liabilities
What does it mean if acid-test ratio is below 1?
What does it mean if acid-test ratio is below 1? If the acid-test ratio is below 1, it means that a company does not have enough liquid assets (cash or equivalents) to cover its current liabilities. This suggests that the company is not in a financially sound position, as it cannot pay its short-term debts.
What is the normal base to acid ratio?
The human body tries to maintain a 1:20 ratio between acids and bases. This is done through several mechanisms that compose the buffer system. The three buffer systems are the carbonic acid-bicarbonate buffer system, protein buffering, and the renal buffering system.
What Is The Use Of Current Ratio And Acid-Test Ratio?
The acid-test ratio and current ratio are two frequently used metrics to measure near-term liquidity risk, or a company’s ability to quickly pay off liabilities coming due in the next twelve months.
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