Acid Ratio
Calculator-Acid Ratio
FORMULA:
- Acid Ratio = Current Assets-inventories / Current Liabilities
- Expressed as a decimal
- For Company with slow inventory turnover,should be ideally be at least not be below 1
- For Company with fast inventory turnover,can be below 1 without suggesting that the company could be in cash flow trouble
- 0.8 is acceptable
- More restrictive: Cash, marketable securities and accounts receivable to current liabilities