Let's illustrate the acid test ratio by assuming that a company has cash of $7,000 + temporary marketable securities of $20,000 + accounts receivables of $93,000. This adds up to $120,000 of quick assets. If its current liabilities amount to $100,000 its acid test ratio is 1.2:1.
The larger the acid test ratio, the more easily will the company be able to meet its current obligations.
The acid test ratio is also known as the quick ratio.
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