Acid Test Ratio Calculator

The acid test ratio, also called the quick ratio, measures whether a firm can pay its short-term obligations without selling inventory. It isolates only the most liquid assets: Cash, Marketable Securities, and Accounts Receivable. Unlike the current ratio, it deliberately excludes inventory and prepaid expenses because these cannot reliably convert to cash within days. A ratio below 1.0 signals that the company cannot fully cover its current liabilities with liquid assets alone. This is a red flag for creditors and suppliers extending trade credit.

The formula originates from early 20th-century credit analysis. "Acid test" references gold assaying: a harsh, definitive pass/fail. This calculator applies the standard definition used by CFA Institute and SEC filings. Note: the ratio assumes receivables are collectible at face value. Firms with high bad-debt ratios should discount AR before input. Industry norms vary. Retailers routinely operate below 1.0 due to fast inventory turnover; software companies typically exceed 2.0.

The acid test ratio isolates quick assets and compares them directly to current liabilities:

Where Cash = cash and cash equivalents (bank balances, money market funds, T-bills maturing within 90 days). Marketable Securities = short-term investments convertible to cash within days (publicly traded stocks, bonds, commercial paper). Accounts Receivable = net trade receivables (gross − allowance for doubtful accounts). Current Liabilities = obligations due within 12 months (accounts payable, short-term debt, accrued expenses, current portion of long-term debt).

A supplementary metric, the cash ratio, is even more conservative:

Interpretation thresholds: Acid Test Ratio ≥ 1.0 indicates adequate liquidity. Values between 0.5 and 1.0 may be acceptable in inventory-heavy industries. Values < 0.5 typically signal liquidity stress.