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Subject: Accounting and Finance

Title : Liquidity Ratios

Acid Test (Quick Ratio)

The quick ratio, also called the Acid test,is a measure of how effectively a company can meet its immediate liabilities. The debtors represent near cash – they are presumably just about to pay up. So immediate liabilities can be met from this source, and, of course, cash.

Current Ratio

The current ratio also includes stock items of raw materials, work in progress and finished goods. The company hopes to convert all of these into cash in the short run, but this depends on continuing sales, and is not so certain, nor is the money immediately available for payment of debts.
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