Given:
Quick assets = $5,888,000
Current assets = $11,700,000
Current liabilities = $8,000,000
To find:
The acid-test ratio
Solution:
Acid-test ratio which is also known as the quick ratio is the measure of the liquidity of a business by representing its capacity to pay off the current liabilities with quick assets.
It is calculated by dividing the quick assets by current liabilities. Quick assets are generally short-term investments, cash equivalents, cash or current receivables.
[tex]\Rightarrow\text{Acid-test ratio}=\frac{\text{Quick assets}}{\text{Current liabilities}}[/tex]
On substituting the given values in the above formula we get,
[tex]\Rightarrow\text{Acid-Test Ratio }=\frac{5,888,000}{8,000,000}=\frac{92}{125}=0.736\approx0.74[/tex]
Therefore, the acid-test ratio equals 0.74.
