Generally, the higher the ratio the better, and a rule-of-thumb is that we should invest only in firms with an acid-test ratio of 1.0 or higher. Story Continues ...

The acid-test ratio and current ratio are two widely used ways to measure a company’s ability to meet short-term liabilities. They differ in how they define liquid assets.

A quick ratio tests a company’s current liquidity and solvency. It is a measure of whether the company can pay its short-term obligations with its cash or cash-like assets on hand. (Short term ...