Acid Test Ratio (Quick Ratio) Calculator

You can use this acid test ratio calculator to compute a company's acid-test ratio. The acid test ratio, which is also referred to as the quick ratio or liquid ratio, provides an indication of an organization's immediate short-term liquidity.

You can determine the acid test ratio in three simple steps:

  • Select the currency in which you want to perform the calculation (optional)
  • Input a value for the company's liquid assets and liquid liabilities
  • Click the "Calculate Acid Test Ratio" button to generate the ratio.
Acid Test Ratio | Quick Ratio Calculator

Liquid Assets

Liquid Liabilities

Calculating the Acid Test Ratio

The acid test ratio (ATR), which is also commonly referred to as the liquid ratio or quick ratio, is a measure of the ratio of an organization's liquid assets to its liquid liabilities and provides an indication of how quickly a business could repay debt. It differs from the current ratio on the basis that it doesn't take into account inventories and prepaid expenses because these do not represent liquid assets. For instance, if an organization has an ATR of 0.65:1, it can pay only $0.65 for every $1 that it owes to its creditors and other agents. If its ratio is 1.16:1, it means that it has $1.16 available for every $1 that it owes.

Companies should seek to have a ratio higher than 1:1. If the ATR falls below this ratio, an organization does not have sufficient funds available to cover.

A ratio of 1:1 is considered acceptable. Higher ratios indicate that a firm is financially stable. Ratios lower than 1:1 mean that a business does not have enough liquid assets to cover its liabilities.

The ATR is determined by dividing the total value of liquid assets – which include cash, accounts receivable, short-term investments, and other assets that can readily be converted into cash form – by the total short-term liabilities. Inventory is not included as a liquid asset because it cannot be quickly and easily converted into cash form without incurring some form of loss. Pre-paid assets are also not considered to be a liquid asset.

A firm's short-term liabilities include accounts payable, short-term loans, income tax due, and accrued expenses that the organization has yet to pay off. Accrued expenses can include any fraction of a long-term loan that is due for repayment within the next 12 months.

Calculating the Acid Test Ratio: An Example

Let's say an organization has the following liquid assets: $10,000 cash, $3,000 in receivables, $1,000 in short-term investments. As such, its total liquid assets are $14,000.

Let's say the firm also has the following short-term liabilities: $5,000 in due income tax, $4,000 in accounts payable, and $1,000 in other expenses. Its total short-term liabilities are $10,000.

Acid test ratio = liquid assets / short-term liabilities

14000 / 10000 = 1.4

As such, the acid test ratio for this organization is 1.4:1.

This ratio indicates that the company is in a good financial position because it has enough liquid assets available to service its short-term liabilities.

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