Acid Test Ratio.

A more stringent test of corporation’s liquidity than the current ratio. It is calculated by adding cash. cash equivalents, and accounts and notes receivable and dividing that sum to the total current liabilities. It is also known as the Quick Asset Ratio.

Note; these elements are found in corporate financial statements. We’ll get into the measurement formulas later on. They are great fun, I promise.

Liquidity:

(1) The ability of an investor to find a willing buyer or seller for a particular security in the secondary market.

(2)The ability of a corporation or other entity to meet short-term expenses.

Security;

Any document such as stocks, bonds, or notes. A fixed insurance or endowment policy, credit union shares, or fixed annuities are not concerned securities.

Secondary Market;

The trading in existing or out-standing securities. ( vs. new issues). Secondary market transactions take place on exchanges or over-counter.


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Learn more about finance terms at Investopedia

Categories: Finance

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