The acid test ratio is a financial ratio that measures a company's ability to pay its short-term liabilities with its quick assets. Quick assets are assets that can be converted into cash within 90 days or less. The acid test ratio is also known as the quick ratio.
The acid test ratio is calculated by dividing a company's quick assets by its current liabilities.
A good acid test ratio is typically considered to be 1.0 or higher. This means that the company has enough quick assets to cover its current liabilities.
A low acid test ratio may indicate that a company is having difficulty paying its short-term obligations. This can be a sign of financial distress.
There are a few ways to improve the acid test ratio. One way is to increase the level of quick assets. This can be done by investing in short-term investments, such as money market funds. Another way to improve the acid test ratio is to reduce the level of current liabilities. This can be done by paying off short-term debt or by negotiating longer payment terms with suppliers.