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Quick asset ratio (AcidTest Ratio) formula calculator
Description
The Quick Asset Ratio, also known as the AcidTest Ratio, is a key financial metric that measures a company's immediate liquidity and ability to cover shortterm financial obligations. It excludes inventory and focuses on the most easily convertible assets, including cash, cash equivalents, marketable securities, and accounts receivable. By using the Quick Asset Ratio formula, you can quickly assess a company's financial health and its capacity to meet shortterm debts. This ratio is crucial for investors, analysts, and lenders to evaluate the company's financial stability and make informed decisions about its future prospects.
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Quick Asset Ratio (AcidTest Ratio) Formula
The Quick Asset Ratio, also known as the AcidTest Ratio, is a vital financial metric that assesses a company's shortterm liquidity and its ability to meet immediate financial obligations. This guide will explain the formula, how to use it with an example, how to use a calculator, frequently asked questions (FAQs), and a conclusion.
Explain the Formula
The Quick Asset Ratio is calculated using the following formula
Quick Asset Ratio = (Cash + Cash Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities
 Cash: The actual physical currency and coins held by the company.
 Cash Equivalents: Highly liquid investments that can be converted into cash within 90 days.
 Marketable Securities: Shortterm investments that are easily convertible into cash.
 Accounts Receivable: The amount owed to the company by customers for goods or services provided.
 Current Liabilities: Shortterm financial obligations, including bills and loans due within the next year.
How to Use It (With Example)
Let's walk through how to calculate the Quick Asset Ratio using the formula:
Quick Asset Ratio = (Cash + Cash Equivalents + Marketable Securities + Accounts Receivable) / Current Liabilities
Step 1: Gather the Necessary Financial Data
First, you need to gather the relevant financial data from the company's financial statements. This typically includes the following

Cash: The amount of physical currency and coins held by the company. For our example, let's say the company has $15,000 in cash.

Cash Equivalents: These are highly liquid investments that can be converted into cash within 90 days. In our example, the company holds $10,000 in cash equivalents.

Marketable Securities: Shortterm investments that are easily convertible into cash. Let's assume the company has $20,000 in marketable securities.

Accounts Receivable: This represents the money owed to the company by its customers for products or services already provided. For our example, the accounts receivable amount is $30,000.

Current Liabilities: These are the company's shortterm financial obligations, including bills, loans, and other debts that need to be paid within the next year. In our example, the current liabilities amount to $25,000.
Step 2: Apply the Formula
Now, plug the values into the Quick Asset Ratio formula:
Quick Asset Ratio = ($15,000 (Cash) + $10,000 (Cash Equivalents) + $20,000 (Marketable Securities) + $30,000 (Accounts Receivable)) / $25,000 (Current Liabilities)
Step 3: Interpret the Result
Calculate the Quick Asset Ratio:
Quick Asset Ratio = ($15,000 + $10,000 + $20,000 + $30,000) / $25,000 = $75,000 / $25,000 = 3
In this example, the Quick Asset Ratio is 3. This indicates that the company's quick assets are three times its current liabilities, suggesting that the company has a very healthy liquidity position. A ratio above 1 is generally considered good, but a ratio of 3 in this case demonstrates strong liquidity and the ability to comfortably cover its shortterm obligations.
How to Use the Calculator
To make the calculation process easier, you can use an online Quick Asset Ratio calculator. Here's how:
 Input the values for cash, cash equivalents, marketable securities, accounts receivable, and current liabilities.
 Click the "Calculate" button.
 The calculator will provide the Quick Asset Ratio result.
Frequently Asked Questions (FAQ)
Q1: What is a good Quick Asset Ratio?
The ideal ratio varies by industry, but generally, a Quick Asset Ratio greater than 1 is considered healthy. It means the company can comfortably meet its shortterm obligations.
Q2: Why is inventory excluded from the formula?
Inventory is excluded because it may not be as easily converted into cash as other current assets. The Quick Asset Ratio focuses on assets that can be quickly converted to cover liabilities.
Q3: How often should I calculate the Quick Asset Ratio?
It's a good practice to calculate and monitor this ratio on a regular basis, such as quarterly or annually, to track changes in a company's liquidity over time.
Conclusion
The Quick Asset Ratio is a valuable tool for assessing a company's ability to meet shortterm financial obligations. By understanding the formula, using it with an example, and utilizing an online calculator, you can make informed decisions about a company's financial health. Regular monitoring and comparison to industry benchmarks are essential to assess a company's liquidity effectively.