Interpreting the Acid-Test Ratio Ideally, companies should have a ratio of 1.0 or greater, meaning the firm has enough liquid assets to cover all short-term debt obligations or bills.

The quick ratio, also known as the acid-test ratio, measures a company's ability to pay off its current debt. Current debt includes any liabilities coming due within a year, like accounts payable ...

The acid-test ratio measures a company's ability to cover short-term liabilities with its most liquid assets. A ratio above 1 suggests good liquidity; below 1 indicates potential payment struggles.

Here, solvent means “able to pay one’s debts,” so when it comes to the acid test ratio, solvency is a good thing, and results of 1 or higher indicate short-term solvency.

Acid-Test Ratio Formula The acid-test ratio, also known as the quick ratio, is a liquidity ratio that is calculated by dividing a company’s most liquid assets by its current liabilities. The ...

If the acid test ratio is less than 1, though, it means the company wouldn't be able to pay off its current liabilities with readily available cash and other short-term assets, and it would have ...

Indeed, the ratio's stringency is evident in the history of its name. The "Acid Test" refers to a test used by early gold miners to check to see if metal they found was really gold.