Acid-test ration definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Acid-test can be defined as: Ratio used to assess a company’s ability to settle its current debts with its most liquid assets; defined as quick assets (cash, short-term investments, and current receivables” divided by current liabilities. Acid-test ration is a liquidity ratio, acid-test ration being used to determine whether a company can pay its upcoming obligations, its current liabilities. The acid-test ration compares quick assets to current liabilities. The current ratio is similar to the acid-test ratio but the acid-test ratio is more restrictive on the assets included. The current ration includes all current assets, the asset test ration only including some of this subsection. For example, inventory is not included in the acid-test ratio.
