|
Quick
Ratio (acid test)
|
Current
Assets (CA) - Stocks |
|
Current
Liabilities |
Benchmark: 0.4
Current
assets less stocks divided by current liabilities.
The rationale here
is that stocks cannot be quickly converted into cash in order to
meet short term debt on demand, and hence they are deducted from
current assets.
In
theory, a company’s quick ratio should be greater or equal to 1,
or it is insolvent. However,
a much lower figure is generally accepted today, provided that the
company is considered to be financially stable.
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