{"id":7800,"date":"2019-04-24T08:17:27","date_gmt":"2019-04-24T07:17:27","guid":{"rendered":"https:\/\/www.wasteyourtime.co\/?p=7800"},"modified":"2019-09-06T21:05:12","modified_gmt":"2019-09-06T20:05:12","slug":"quick-ratio-acid-test-ratio","status":"publish","type":"post","link":"https:\/\/traders-paradise.com\/magazine\/2019\/04\/quick-ratio-acid-test-ratio\/","title":{"rendered":"The quick ratio or acid test ratio"},"content":{"rendered":"

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3 min read<\/span><\/i><\/p>\n

\"The<\/p>\n

The quick ratio is a liquidity ratio that estimates the strength of a company to pay its current obligations when they come due with only quick assets. It is also called an acid test ratio.<\/span><\/p>\n

Quick assets are current assets that you can change to currencies within 90 days or in the short-term.<\/span><\/p>\n

In other words, the quick ratio is a measure of how well a company can meet its short-term financial liabilities. <\/span>
\nIt is liquidity metric and can be calculated as follows:<\/span><\/p>\n

(Cash + Marketable Securities + Accounts Receivable) \/ Current Liabilities<\/b><\/p>\n

The quick ratio can be calculated for quick assets only.<\/span><\/p>\n

\"The<\/p>\n

Let’s explain why sometimes the quick ratio is known as an acid ratio?<\/span><\/p>\n

That comes due to the historical use of acid to examine metals for gold. The early miners used it. <\/span><\/p>\n

If the metal passes the test, they know it is pure gold<\/a>. But if the result was opposite and metal was rusting, the gold miners knew there is no value.<\/span><\/p>\n

The acid test of investment determines is a company able to instantly change its assets into cash within 90 days. <\/span>
\nSo, the acid test ratio is a more traditional variant. The other liquidity metric is a modern one – the current ratio. \u00a0<\/span><\/p>\n

They are pretty similar but the acid test ratio gives a more precise estimation.<\/span><\/p>\n

How is that?<\/span><\/p>\n

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