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Meaning of acid test ratio

 

 

 

Acid test ratio

 

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Business glossary

 

Meaning of term acid test ratio :

 

The acid test or quick ratio is the current ratio with stock and work-in-progress deducted from current assets. It is considered to be a better measure of short-term liquidity than the current ratio as it recognises that stock can be a difficult asset to realise quickly. It is often said that the value of the acid test ratio should be greater than one to ensure that the firm can meet all their short-term liabilities from liquid current assets, but the exact preferred value will depend on the particular industry.

 

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Acid test ratio

 

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