Acid Tests

An acid test, also known as the quick ratio, is a way to measure a company's short-term financial health. It assesses whether a company has enough liquid assets—cash, marketable securities, and accounts receivable—to cover its immediate liabilities, like bills and short-term debts. By excluding inventory, which might take time to sell, it provides a clearer picture of whether the company can meet its urgent financial obligations. A higher acid test ratio indicates better liquidity and financial stability in the short term.