The Income|Outcome^® Contextuary

The Acid-Test Ratio is a variant of the Current Ratio; it only includes items which are quickly (and easily) converted into cash. It is called ‘Acid-Test’ because it measures the ability to meet unexpected demands without depending on the sale of inventory.

A ratio of 1 is a good benchmark. Higher ratios indicate a satisfactory condition. Decreasing ratios indicate either a deteriorating cash position or a deteriorating demand for products.

“What do you mean by that?”

Another definition of Quick Assets is: Current Assets less Inventories. This definition includes Prepaid Expenses but they are not always quickly converted to Cash.

===