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What Is an Acid Test Ratio?

By Jeremy Bowman – Updated Nov 12, 2024 at 10:18AM

Key Points

  • The acid-test ratio measures a company's ability to cover short-term liabilities with its most liquid assets.
  • A ratio above 1 suggests good liquidity; below 1 indicates potential payment struggles.
  • Investors use this ratio to evaluate risks, especially during economic downturns or company distress.
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