# Acid Test (Quick Ratio)

Ratio

Evaluates a company's short-term liquidity, discounting inventory. Similar to the current ratio but excludes inventory from current assets. It offers a more stringent measure of short-term liquidity, ensuring that a company can meet its immediate obligations even without selling its inventory.

## Formula

(Current Assets - Inventory) / Current Liabilities

## Example

If a company has current assets of $1,000,000 (of which $200,000 is inventory) and current liabilities of $500,000, its quick ratio is 1.6:1.