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Thursday, April 7, 2011

Acid-Test Ratio Formula & Example

Definition: Acid-Test Ratio (also known as Quick ratio) is the ratio of the sum of quick assets (excluding stocks) to the current liabilities of a business.

Formula:
Acid-Test Ratio = (Current Assets - Stock) / Current Liabilities
Or,
Acid-Test Ratio = (Cash + Bank + Debtors) / Current Liabilities

Example 1:
The following information relates to ABC Ltd. as at 31 December 2009:
Tangible fixed

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