acid test
Definition:
The acid test, also known as the QUICK RATIO and LIQUIDITY RATIOS, is: current assets - stock/ current liabilities This ratio is a measure of liquidity, and as with all ratios, percentages and yields, is of little use if viewed in isolation. The rationale behind the ratio is that STOCK is often the most difficult current asset to realize at book value in a crisis, and if a company can meet all its liabilities from other current assets, then it will have a good liquidity level.
Cross-References:
[liquidity ratio]
[stock]
[quick ratio]
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© Westburn Publishers Ltd 2002, The Westburn Dictionary of Marketing edited by Michael J Baker, ISBN 978-0-946433-01-8. www.themarketingdictionary.com. Entry: [Gerald Michaluk], [1998].