Acid Test

also called “Quick Ratio” or “Quick Test”

$\text{acid score}=\frac{\text{current assets}-\text{inventory}}{\text{current liablities}}$ … should be as close to 1, but not under

if acid score is close to 1 then…

• short term assets are covered by short term liabilities
• long term assets are covered by long term liabilities
• otherwise you are in big trouble
  • below 1 … very bad
  • the farther away from 1 the worse