{"id":1702,"date":"2020-10-15T23:19:08","date_gmt":"2020-10-15T21:19:08","guid":{"rendered":"https:\/\/www.financetuts.com\/?p=1702"},"modified":"2020-10-16T23:31:51","modified_gmt":"2020-10-16T21:31:51","slug":"quick-ratio-acid-test","status":"publish","type":"post","link":"https:\/\/www.financetuts.com\/quick-ratio-acid-test\/","title":{"rendered":"Quick Ratio &#038; Acid Test: Complete Guide"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"1702\" class=\"elementor elementor-1702\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-333fb269 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"333fb269\" data-element_type=\"section\" data-settings=\"{&quot;background_background&quot;:&quot;classic&quot;}\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-16b3eb5d\" data-id=\"16b3eb5d\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-4b4943ed elementor-widget elementor-widget-theme-post-title\" data-id=\"4b4943ed\" data-element_type=\"widget\" data-widget_type=\"theme-post-title.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-7a0943ec elementor-widget elementor-widget-heading\" data-id=\"7a0943ec\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<p class=\"elementor-heading-title elementor-size-default\">Calculation Formula | Examples | What Is \"Good\" | Analysis & Interpretation | Definition & Meaning\u200b<\/p>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-21b2d2a5 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"21b2d2a5\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-33 elementor-top-column elementor-element elementor-element-679d8413\" data-id=\"679d8413\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap\">\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<div class=\"elementor-column elementor-col-66 elementor-top-column elementor-element elementor-element-3c794ec5\" data-id=\"3c794ec5\" data-element_type=\"column\" data-settings=\"{&quot;background_background&quot;:&quot;classic&quot;}\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-589b08ab elementor-widget elementor-widget-heading\" data-id=\"589b08ab\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<h2 class=\"elementor-heading-title elementor-size-default\">Definition: WHAT Is Quick Ratio \/ Acid Test Ratio?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-40cbf4f elementor-widget elementor-widget-uael-infobox\" data-id=\"40cbf4f\" data-element_type=\"widget\" data-widget_type=\"uael-infobox.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\n<div class=\"uael-module-content uael-infobox uael-imgicon-style-normal  uael-infobox-left  infobox-has-icon uael-infobox-icon-left  uael-infobox-image-valign-top  uael-infobox-stacked-tablet  uael-infobox-link-type-none\">\n\t<div class=\"uael-infobox-left-right-wrap\">\n\t\t\t\t\t\t\t\t<div class=\"uael-module-content uael-imgicon-wrap \">\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"uael-icon-wrap elementor-animation-bounce-in\">\n\t\t\t\t\t\t\t\t<span class=\"uael-icon\">\n\t\t\t\t\t\t\t\t\t<i aria-hidden=\"true\" class=\"far fa-lightbulb\"><\/i>\t\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<div class=\"uael-infobox-content\">\n\t\t\t\t\t\t<div class='uael-infobox-title-wrap'><\/div>\t\t\t\t\t\t\t\t\t<div class=\"uael-infobox-text-wrap\">\n\t\t\t\t<div class=\"uael-infobox-text elementor-inline-editing\" data-elementor-setting-key=\"infobox_description\" data-elementor-inline-editing-toolbar=\"advanced\">\n\t\t\t\t\tQuick ratio, or acid test ratio, calculates how well current liabilities are covered by liquid assets by excluding illiquid inventory from current assets to provide more accurate measure of short-term liquidity for entities with long inventory cash cycles.\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<div class=\"uael-separator-parent\">\n\t\t\t\t<div class=\"uael-separator\"><\/div>\n\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-617ff1bb elementor-widget elementor-widget-heading\" data-id=\"617ff1bb\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<h2 class=\"elementor-heading-title elementor-size-default\">Formula: HOW to Calculate Quick Ratio \/ Acid Test Ratio?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-cebd623 elementor-widget elementor-widget-uael-infobox\" data-id=\"cebd623\" data-element_type=\"widget\" data-widget_type=\"uael-infobox.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\n<div class=\"uael-module-content uael-infobox uael-imgicon-style-normal  uael-infobox-left  infobox-has-icon uael-infobox-icon-left  uael-infobox-image-valign-top  uael-infobox-stacked-tablet  uael-infobox-link-type-none\">\n\t<div class=\"uael-infobox-left-right-wrap\">\n\t\t\t\t\t\t\t\t<div class=\"uael-module-content uael-imgicon-wrap \">\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"uael-icon-wrap elementor-animation-bounce-in\">\n\t\t\t\t\t\t\t\t<span class=\"uael-icon\">\n\t\t\t\t\t\t\t\t\t<i aria-hidden=\"true\" class=\"far fa-lightbulb\"><\/i>\t\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<div class=\"uael-infobox-content\">\n\t\t\t\t\t\t<div class='uael-infobox-title-wrap'><p class=\"uael-infobox-title elementor-inline-editing\" data-elementor-setting-key=\"infobox_title\" data-elementor-inline-editing-toolbar=\"basic\" >(Current Assets - Inventory) \/ Current Liabilities.<\/p><\/div>\t\t\t\t\t\t\t\t\t<div class=\"uael-infobox-text-wrap\">\n\t\t\t\t<div class=\"uael-infobox-text elementor-inline-editing\" data-elementor-setting-key=\"infobox_description\" data-elementor-inline-editing-toolbar=\"advanced\">\n\t\t\t\t\tQuick ratio, or acid test ratio, is calculated by dividing current assets less inventory by current liabilities.\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<div class=\"uael-separator-parent\">\n\t\t\t\t<div class=\"uael-separator\"><\/div>\n\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-439183e8 elementor-widget elementor-widget-heading\" data-id=\"439183e8\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<h2 class=\"elementor-heading-title elementor-size-default\">Meaning: WHEN to Use Quick Ratio \/ Acid Test?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-ebccf70 elementor-widget elementor-widget-uael-infobox\" data-id=\"ebccf70\" data-element_type=\"widget\" data-widget_type=\"uael-infobox.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\n<div class=\"uael-module-content uael-infobox uael-imgicon-style-normal  uael-infobox-left  infobox-has-icon uael-infobox-icon-left  uael-infobox-image-valign-top  uael-infobox-stacked-tablet  uael-infobox-link-type-none\">\n\t<div class=\"uael-infobox-left-right-wrap\">\n\t\t\t\t\t\t\t\t<div class=\"uael-module-content uael-imgicon-wrap \">\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"uael-icon-wrap elementor-animation-bounce-in\">\n\t\t\t\t\t\t\t\t<span class=\"uael-icon\">\n\t\t\t\t\t\t\t\t\t<i aria-hidden=\"true\" class=\"far fa-lightbulb\"><\/i>\t\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<div class=\"uael-infobox-content\">\n\t\t\t\t\t\t<div class='uael-infobox-title-wrap'><\/div>\t\t\t\t\t\t\t\t\t<div class=\"uael-infobox-text-wrap\">\n\t\t\t\t<div class=\"uael-infobox-text elementor-inline-editing\" data-elementor-setting-key=\"infobox_description\" data-elementor-inline-editing-toolbar=\"advanced\">\n\t\t\t\t\tThe quick ratio \/ acid test ratio provides an indication of a company\u2019s short-term liquidity position (= time taken to convert into cash) and reflects the fact that some businesses are not able to convert inventory into cash as fast as others. \t\t\t\t<\/div>\n\t\t\t\t\t\t\t<div class=\"uael-separator-parent\">\n\t\t\t\t<div class=\"uael-separator\"><\/div>\n\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-65be4b04 elementor-widget elementor-widget-text-editor\" data-id=\"65be4b04\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p>For example, some manufacturing companies hold large quantities of raw materials for the production of finished goods, which are then warehoused and sold on credit for a lengthy period of time.<\/p><p>In such businesses with <strong>slow inventory turnover<\/strong> and<strong> long cash cycle<\/strong>, stock is not a very liquid asset, compared to cash and other receivables.<\/p><p>Consequently, it would <strong>distort<\/strong> the ratio if inventory was used to assess short-term liquidity.<\/p><p>Instead, we calculate the quick ratio, which is the ratio of current assets <strong>less inventories<\/strong> to current liabilities.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-3cb9f4 elementor-widget elementor-widget-heading\" data-id=\"3cb9f4\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<h2 class=\"elementor-heading-title elementor-size-default\">\"Acid Test\": WHY is the Quick Ratio also called Acid Test Ratio?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-7268a761 elementor-widget elementor-widget-text-editor\" data-id=\"7268a761\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p>The quick ratio is also known as the acid test ratio because by eliminating inventory from current assets it provides the <strong>acid test<\/strong> of whether the company has sufficient <strong>liquid<\/strong> resources to settle its liabilities.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-dedc17 elementor-widget elementor-widget-heading\" data-id=\"dedc17\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<h2 class=\"elementor-heading-title elementor-size-default\">What Is a \u2018Good\u2019 Quick Ratio \/ Acid Test?<span style=\"color: inherit; font-family: var( --e-global-typography-accent-font-family ); font-size: var( --e-global-typography-accent-font-size ); font-weight: var( --e-global-typography-accent-font-weight );\"><\/span><br><\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-70a33c4 elementor-widget elementor-widget-uael-infobox\" data-id=\"70a33c4\" data-element_type=\"widget\" data-widget_type=\"uael-infobox.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\n<div class=\"uael-module-content uael-infobox uael-imgicon-style-normal  uael-infobox-left  infobox-has-icon uael-infobox-icon-left  uael-infobox-image-valign-top  uael-infobox-stacked-tablet  uael-infobox-link-type-none\">\n\t<div class=\"uael-infobox-left-right-wrap\">\n\t\t\t\t\t\t\t\t<div class=\"uael-module-content uael-imgicon-wrap \">\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<div class=\"uael-icon-wrap elementor-animation-bounce-in\">\n\t\t\t\t\t\t\t\t<span class=\"uael-icon\">\n\t\t\t\t\t\t\t\t\t<i aria-hidden=\"true\" class=\"far fa-lightbulb\"><\/i>\t\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<div class=\"uael-infobox-content\">\n\t\t\t\t\t\t<div class='uael-infobox-title-wrap'><\/div>\t\t\t\t\t\t\t\t\t<div class=\"uael-infobox-text-wrap\">\n\t\t\t\t<div class=\"uael-infobox-text elementor-inline-editing\" data-elementor-setting-key=\"infobox_description\" data-elementor-inline-editing-toolbar=\"advanced\">\n\t\t\t\t\tQuick ratio \/ acid test ratio should ideally be at least 1 for businesses with a slow inventory turnover. For companies with a fast inventory turnover, the ratio can be less than 1 without suggesting any liquidity issues.\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<div class=\"uael-separator-parent\">\n\t\t\t\t<div class=\"uael-separator\"><\/div>\n\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-417faab9 elementor-widget elementor-widget-text-editor\" data-id=\"417faab9\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p>A measure of <strong>1:1<\/strong> means that an entity is able to meet existing liabilities if they all fall due at once.<\/p><p>Some say that acceptable levels for the quick ratio range <span style=\"text-decoration: underline;\"><strong>from 1:1 to 0.7:1<\/strong><\/span>.<\/p><p>But the absolute figures should only be used as a <strong>general guide<\/strong>.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-2b31e90 elementor-widget elementor-widget-heading\" data-id=\"2b31e90\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<h2 class=\"elementor-heading-title elementor-size-default\">Analysis: HOW Do You Interpret Quick Ratio \/ Acid Test?<span style=\"color: inherit; font-family: var( --e-global-typography-accent-font-family ); font-size: var( --e-global-typography-accent-font-size ); font-weight: var( --e-global-typography-accent-font-weight );\"><\/span><br><\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-76de7f5 elementor-widget elementor-widget-text-editor\" data-id=\"76de7f5\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p><span style=\"color: var( --e-global-color-text ); font-family: var( --e-global-typography-text-font-family ); font-size: var( --e-global-typography-text-font-size ); font-weight: var( --e-global-typography-text-font-weight );\">In addition to analysing how &#8216;safe&#8217; a business is based on the quick \/ acid test ratios alone, it is important to examine the figures in <\/span><strong style=\"color: var( --e-global-color-text ); font-family: var( --e-global-typography-text-font-family ); font-size: var( --e-global-typography-text-font-size );\">context<\/strong><span style=\"color: var( --e-global-color-text ); font-family: var( --e-global-typography-text-font-family ); font-size: var( --e-global-typography-text-font-size ); font-weight: var( --e-global-typography-text-font-weight );\">, including the following considerations:<\/span><br><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-1fdbe7 elementor-widget elementor-widget-text-editor\" data-id=\"1fdbe7\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<ul><li><strong>Benchmarks:<\/strong> Consider the nature of the business (e.g., supermarket have ratios as low as 0.10, compared to a manufacturer or retailer with 1.0)<br \/><br \/><\/li><li><strong>Trends:<\/strong> Ratio trends will indicate whether liquidity is improving or deteriorating (e.g. year-on-year).<br \/><br \/><\/li><li><strong>Source:<\/strong> Examine why the ratios have moved, for example, look for the following issues:<ul><li><strong>Overdraft:<\/strong> Entity may have sufficient bank overdraft facilities available to help manage a low quick ratio.<\/li><li><strong>Cash:<\/strong> Quick ratio could be high if overtrading with receivables, but no cash.<\/li><li><strong>Debt:<\/strong> Cash inflows may have come from taking on more debt rather than entity\u2019s performance.<\/li><li><strong>Working capital:<\/strong> Excessively large ratio may indicate overinvesting in working capital, tying up more funds in the business than needed, as a result of inefficient management of receivables or inventory.<\/li><\/ul><\/li><\/ul>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-026e707 elementor-widget elementor-widget-text-editor\" data-id=\"026e707\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p>When it comes to the analysis and interpretation of the quick \/ acid test ratio, the comments are largely the same as for the <a title=\"current ratio [click to read the full post]\" href=\"https:\/\/www.financetuts.com\/current-ratio\/\" target=\"_blank\" rel=\"noopener\"><strong>current ratio<\/strong><\/a>.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-3307a6e9 elementor-widget elementor-widget-heading\" data-id=\"3307a6e9\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<h2 class=\"elementor-heading-title elementor-size-default\"> What's the Difference Between Quick Ratio VS. Current Ratio?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-358da192 elementor-widget elementor-widget-text-editor\" data-id=\"358da192\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p>Both the quick ratio and the <a href=\"https:\/\/www.financetuts.com\/current-ratio\/\" target=\"_blank\" rel=\"noopener\">current ratio<\/a> offer an indication of a company&#8217;s short-term liquidity position and so both are calculated with formulas that are identical with only one\u2013but significant\u2013difference: in acid test ratio, <strong>inventory is removed from the current assets.<\/strong><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-8d35dae elementor-widget elementor-widget-blockquote\" data-id=\"8d35dae\" data-element_type=\"widget\" data-widget_type=\"blockquote.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-1905bcd elementor-widget elementor-widget-blockquote\" data-id=\"1905bcd\" data-element_type=\"widget\" data-widget_type=\"blockquote.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-d175f6a elementor-widget elementor-widget-text-editor\" data-id=\"d175f6a\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p>Consequently, the quick \/ acid test ratio offers the following <strong>advantages<\/strong> compared to the current ratio:<\/p><ul><li>Measures how well current liabilities are covered by liquid assets by <strong>excluding illiquid inventory<\/strong><\/li><li>Becomes particularly useful where inventory holding periods and cash<strong> cycles are long<\/strong><\/li><li>Eliminates often <strong>subjectively valued<\/strong> inventory from the calculation<\/li><\/ul><p><br \/>However, for business with <strong>normal speed<\/strong> of inventory turnover, where we do not want to exclude inventory from the calculation, use the <a href=\"https:\/\/www.financetuts.com\/current-ratio\/\" target=\"_blank\" rel=\"noopener\">current ratio<\/a> instead.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-52b64c16 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"52b64c16\" data-element_type=\"section\" data-settings=\"{&quot;background_background&quot;:&quot;classic&quot;}\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-28c5cf64\" data-id=\"28c5cf64\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-88de8c8 elementor-widget elementor-widget-heading\" data-id=\"88de8c8\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<p class=\"elementor-heading-title elementor-size-large\">Sign up for our Newsletter<\/p>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-481a2cd0 elementor-widget elementor-widget-text-editor\" data-id=\"481a2cd0\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p>Get more articles just like this straight into your 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elementor-size-default\">Related Posts<\/p>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<div class=\"elementor-column elementor-col-50 elementor-top-column elementor-element elementor-element-226f6ae0\" data-id=\"226f6ae0\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-767eda8e elementor-widget elementor-widget-heading\" data-id=\"767eda8e\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<p class=\"elementor-heading-title elementor-size-default\">Recent Posts<\/p>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-7fe7f62f elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"7fe7f62f\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-148089a4\" data-id=\"148089a4\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-1a26efef elementor-widget elementor-widget-spacer\" data-id=\"1a26efef\" data-element_type=\"widget\" data-widget_type=\"spacer.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t<div class=\"elementor-spacer\">\n\t\t\t<div class=\"elementor-spacer-inner\"><\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Calculation Formula | Examples | What Is &#8220;Good&#8221; | Analysis &#038; Interpretation | Definition &#038; Meaning\u200b Share on facebook Share on twitter Share on pinterest Share on linkedin Contents Definition: WHAT Is Quick Ratio \/ Acid Test Ratio? Quick ratio, or acid test ratio, calculates how well current liabilities are covered by liquid assets by [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1739,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_wordproof_timestamp":false},"categories":[4],"tags":[],"_links":{"self":[{"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/posts\/1702"}],"collection":[{"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/comments?post=1702"}],"version-history":[{"count":0,"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/posts\/1702\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/media\/1739"}],"wp:attachment":[{"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/media?parent=1702"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/categories?post=1702"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.financetuts.com\/wp-json\/wp\/v2\/tags?post=1702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}