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Accounting
Acid-Test Ratio
A strict measure of liquidity that ignores inventory — (cash + receivables + short-term investments) ÷ current liabilities.
The acid-test (or quick) ratio is more conservative than the current ratio because inventory can be hard to sell quickly. A ratio above 1.0 is generally considered healthy.
It's the 'can we pay our bills right now even if we can't sell any stock?' test.
Real world: A retailer with lots of inventory might look healthy on the current ratio but fail the acid-test ratio. This warns that it could run into cash problems if sales slow down.
💡 The acid-test ratio tells you if a company can survive even in a fire sale.