Online Calculators for Business & Investment
The Acid-Test Ratio is stricter than the current ratio, in that only more liquid assets are used to cover the current liabilities. Specifically, it uses cash, cash equivalents, short-term investments and short-term receivables to meet the current liabilities.
So what is different from the current ratio? There are some current assets (used in the current ratio) that are either not convertible to cash, such as prepayments, or either dependant on other factors to turn into cash, such as the state of the economy in selling inventory.
Since the Acid-Test Ratio is stricter than the current ratio you have more flexibility (and maybe feel ‘safer’) to meet your short-term obligations if you have a strong result, in comparison to an equivalent current ratio.
Similar to the current ratio, if you have an Acid-Test Ratio of, say 1.45 or 2.67, this means that for each dollar of short-term debts (current liabilities) you have liquid assets to meet these debts 1.45 or 2.67 times, whichever the case may be.
Acid-Test Ratio Calculator
The calculator asks for:
Cash & Cash Equivalents, which are found on the balance sheet.
Short-Term Investments, which are also found on the balance sheet.
Current Receivables, which are found on the balance sheet.
Current Liabilities, which are again found on the balance sheet.