Acid Test Ratio Calculator


Acid Test Ratio Calculator is used to calculate the Acid Test Ratio of a firm's short-term assets

Acid Test Ratio:
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What does Acid Test Ratio mean?
The acid-test ratio is an indicator of a firm’s sufficient short-term assets to cover its immediate liabilities. This is more reliable than the current ratio since it ignores illiquid assets such as inventory.
Formula
Acid Test Ratio = (Current Assets - Inventories) / Current Liabilities
Example

Below is a company's balance sheet, for the fiscal year ended October 30, 2017, by it the acid-test ratio can be calculated.

Cash equivalents$20,289
Short-term marketable securities$53,892
Accounts receivable$17,874
Inventories$4,855
Vendor non-trade receivables$17,799
Other assets(current)$13,936
Total assets(current)$128,645
Accounts payable$49,049
Accrued expenses$25,744
Deferred revenue$7,548
Commercial paper$11,977
Current portion of long-term debt$6,496
Total liabilities(current)$100,814

According to the formula, we can divide current liquid current assets by total current liabilities:-

  • The company’s acid-test ratio = (20,289 + 53,892 + 17,874 + 17,799) / 100,814
  • = 1.09
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