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Acid Ratio Test

 

The determination of the ratio of total cash, accounts receivable (debtors) and the market value of marketable investments of a business to its current liabilities. For example, if the balance sheet shows cash as £500, debtors as £100 and marketable securities totalling £300, the acid test ratio is 3 to 1. The ratio is used by financial and credit analysts as a guide to credit rating. Also known as quick ratio or liquid ratio.

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