Acid Test Ratio

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Definition: Acid Test Ratio

Quick Summary of Acid Test Ratio

The ratio of liquid assets to current liabilities.

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What is the dictionary definition of Acid Test Ratio?

Dictionary Definition

A financial ratio similar to the current ratio or working capital ratio, defined as: current assets minus stocks divided by current liabilities. It shows whether a company would be able to pay its debts if it needed to satisfy creditors but it had no time to sell any of its assets.

Examples of Acid Test Ratio in a sentence

The larger the acid-test ratio, the better able the business is to pay its current liabilities.
In general, an acid-test ratio of 1.00 is considered safe.
The acid-test ratio assumes that all current liabilities are payable immediately and that the debtor will convert the most liquid assets to cash.

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Acid Test Ratio. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. July 14, 2020 https://payrollheaven.com/define/acid-test-ratio/.
Chicago Manual of Style (CMS):
Acid Test Ratio. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/acid-test-ratio/ (accessed: July 14, 2020).
American Psychological Association (APA):
Acid Test Ratio. PayrollHeaven.com. Retrieved July 14, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/acid-test-ratio/

Definition Sources

Definitions for Acid Test Ratio are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th April, 2020 | 1 Views.