Acid-Test Ratio Calculator

A stricter liquidity check than working capital alone

The acid-test ratio (also called the quick ratio) deliberately strips inventory out of current assets before comparing against current liabilities, since inventory can be slow, uncertain, or costly to convert into cash quickly if a business needed funds fast.

Worked example

For a business with $150,000 in current assets, $40,000 of which is inventory, against $90,000 in current liabilities:

Quick Assets = 150000 - 40000 = 110,000

Acid-Test Ratio = 110000 / 90000 = 1.22 (Can cover short-term liabilities without selling inventory)

Acid-Test Ratio	General Interpretation
Below 1.0	May need inventory sales or new cash to cover liabilities
1.0 and above	Can cover liabilities with liquid assets alone

Businesses with naturally large inventory holdings (retail, manufacturing) often show a much bigger gap between their working capital and acid-test ratio than service-based businesses with little or no inventory.