Acid Test Ratio Calculator

Updated: Oct 24, 2018

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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Background Information

What does Acid Test Ratio mean?
The acid-test ratio is an indicator of a firmâ€™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
• (20,289 + 35,673 + 53,892) / 100,814
• (55,962 + 53,892) / 100,814
• 109,854 / 100,814
• 1.0897
• Acid Test Ratio = 1.0897 : 1

Created: May 22, 2018
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