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What is Acid Test Ratio mean?
In finance, the quick ratio, also known as the acid-test ratio is a type of liquidity ratio, which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. It is defined as the ratio between quickly available or liquid assets and current liabilities. Quick assets are current assets that can presumably be quickly converted to cash at close to their book values.
A normal liquid ratio is considered to be 1:1. A company with a quick ratio of less than 1 cannot currently fully pay back its current liabilities.
The quick ratio is similar to the current ratio, but provides a more conservative assessment of the liquidity position of firms as it excludes inventory, which it does not consider as sufficiently liquid.
referencePosted on 29 Dec 2024, this text provides information on Miscellaneous in Banking related to Banking. Please note that while accuracy is prioritized, the data presented might not be entirely correct or up-to-date. This information is offered for general knowledge and informational purposes only, and should not be considered as a substitute for professional advice.
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