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Because prepaid expenses and inventories are much harder to covert into cash than other current assets, a ratio known as the Quick Ratio or Acid Test is sometimes calculated as a supplement to the Current Ratio. The quick ratio compares the very liquid current assets such as cash, marketable securities and receivables (Quick Assets) with current liabilities. The calculation of quick ratio or acid test is: Quick Assets / Current Liabilities Generally, a quick ratio or acid test value of 1.0 or better is considered satisfactory. With a ratio greater than 1.0, a company can satisfy current liabilities using the highly liquid Quick Assets. |
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