The acid-test ratio takes the sum of cash, short-term investments, and ________ and divides the total by current liabilities. It helps determine immediate short-term debt-paying ability.

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03-12-2021
Business

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The acid-test ratio takes the sum of cash, short-term investments, and ________ and divides the total by current liabilities. It helps determine immediate short-term debt-paying ability.

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ewomazinoade ewomazinoade · Answer 1 · 2021-12-14T12:54:03+01:00

The acid-test ratio takes the sum of cash, short-term investments, and receivables and divides the total by current liabilities. .

Acid test ratio is also known as quick ratio. It is a measure of the capability of a firm to use its short term assets to meet current liabilities. It is an example of an activity ratio.

Acid test ratio = (current asset - inventory) / current liabilities

The higher the acid-test ratio, the better the ability of a firm to meets its short term liabilities.

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