Tuesday, February 15, 2011

Quick ratio / acid test ratio


Quick ratio / acid test ratio  
         Quick ratio is also known as “Acid Test Ratio”. We calculate this ratio by excluding stock in trade (inventory) from current assets and then divide by Current liabilities. Normal ratio is 1:1. Quick ratio measure the immediate liquidity, it states more pure liquidity position of a business concerned. It measures the firm’s ability to pay-off its short term obligation immediately.

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