Acid Test Ratio Example:
Company XYZ has the following financial information:
- Cash: 50,000
- Marketable Securities: 20,000
- Accounts Receivable: 30,000
- Inventory: 40,000
- Current Liabilities: 70,000
Answer : Formula
= (50,000 + 20,000 + 30,000) / 70,000
= 100,000 / 70,000
= 1.43
Therefore if the ratio is 1.43 it means that for every 1 INR of current liabilities, the company has INR 1.43 of highly liquid assets available to cover its short-term obligations, excluding inventory.
Reference (External Link): https://corporatefinanceinstitute.com/resources/accounting/acid-test-ratio/