Acid Ratio Law and Legal Definition

Acid ratio is the alternative term for acid test ratio. It is also known as quick ratio. Acid ratio is the comparison between a company's short-term assets and the immediate liabilities. It is a test that indicates whether a firm has enough short-term assets to cover its liabilities or not. Acid ratio is current assets minus inventories divided by current liabilities. It is viewed as a sign of company’s financial strength or weakness (higher number means stronger, lower number means weaker).