Acid Test Ratio Calculator

Updated: Aug 25, 2018
FINANCE   COMPANY  

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 = `(c + a + i) / l`

Where:-

  • c = cash
  • a = accounts receivable
  • i = short term investments
  • l = 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
Accounts receivable$17,874
Vendor non-trade receivables$17,799
Short-term marketable securities$53,892
Inventories$4,855
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:-

  • `(c + a + i) / l`
  • `(20289 + 35673 + 53892) / 100814`
  • `(55962 + 53892) / 100814`
  • `109854 / 100814`
  • `1.0897`
  • Acid Test Ratio = `1.0897 : 1`

 
Created: May 22, 2018
Online Tool Designed For: Windows, OS X, Android, iOS, Linux