What is Acid Test Ratio - Definition - Formula - Example - Interpretation - Importance
Acid Test Ratio is used to measure the Liquidity position of a business. How much a liquid asset a firm has and utilize to overcome its short-term obligations or expenses incurred on daily working hours. This ratio is also known as Quick Ratio . This ratio helps the company in measuring its liquidity position in order to meet Cash requirements of business and hence maintain Working Capital of the business in an effective way. Acid Test Ratio Formula & Calculation It is calculated as: Acid Test Ratio = Current Assets - Closing Stock - Prepaid Expenses / Current Liabilities X 100 = Quick Assets / Current Liabilities X 100 Example: if Current Assets of the company is Rs. 500000 where Closing Inventory is Rs. 50000 and Prepaid Expenses are Rs. 30000, then Quick Assets = 420000 And Current Liabilities are Rs. 300000. N ow, we can...