Measures the ability of a business to use its near cash or quick assets to immediately extinguish or retire its current liabilities. Also known as quick ratio or liquid ratio. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values. Generally, the acid test ratio should be 1:1 or better, however this varies widely by industry. In general, the higher the ratio, the greater the company’s liquidity (i.e., the better able to meet current obligations using liquid assets). Formula: Acid Test Ratio = Current Assets – Inventory ÷ Current liabilities

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