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Quick or acid test ratio calculator
The quick ratio, sometimes called the acid test ratio, is similar to the
current ratio, but is considered a more reliable indicator of a company's
ability to meet its short-term financial obligations. Because inventory
can sometimes be difficult to liquidate, this ratio deducts inventory
from your assets before computing the ratio. Potential creditors like
to use this ratio because it reveals a company's ability to pay off
under the worst possible conditions.
The formula:
Current assets minus inventories, divided by current liabilities
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How to use this calculator
The balance sheet from your latest financial statement holds
the numbers you'll need to calculate your company's quick ratio.
Find the entries for total current assets, inventories and total
current liabilities
- Fill in total current assets.
- Fill in current inventory.
- Fill in total current liabilities.
- Press "calculate."
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Now you know
where you stand and have a basis for comparison with previous years.
A quick ratio of 1.0:1 means you have a dollar's worth of easily
convertible assets for each dollar of your current liabilities.
Though acceptable ratios can vary from industry to industry, a ratio
of 1.0:1 is generally acceptable to most creditors. Comparing today's
quick ratio to quick ratios calculated from previous financial statements
can give you a hint of developing trends in your company. While
changes in ratios don't automatically spell trouble, uncovering
the reasons for changes can help you find ways to nip potential
problems in the bud.
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