# How to Calculate Acid Test Ratio ••• Jupiterimages/Photos.com/Getty Images
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The acid test ratio, which is also known as the quick ratio, is a type a liquidity ratio that measures a company’s ability to pay its short-term debts. It compares a company’s most-liquid assets, or those that can be quickly converted into cash, to its short-term debts. The ratio equals the sum of a company’s cash, short-term investments and accounts receivable divided by its current liabilities. The ratio excludes inventory from current assets, which is not as liquid as the other assets. A ratio greater than one means a company can pay its short-term debts. A ratio less than one means a company may have trouble paying its short-term bills.

Find cash, short-term investments and accounts receivable on a company’s balance sheet listed in the “current assets” section.

Calculate the sum of these assets using the calculator. For example, add \$1,000 plus \$1,200 plus \$2,000 for a company with \$1,000 in cash, \$1,200 in short-term investments and \$2,000 in accounts receivable. This equals \$4,200.

Use the calculator to divide \$4,200 by the company’s current liabilities, which is found in the “liabilities” section of the balance sheet. For example, a company with \$3,500 in current liabilities has a quick ratio of 1.2: \$4,200 divided by \$3,500 equals 1.2. Since the ratio is greater than one, this company has enough current assets to meet its short-term financial obligations without relying on its inventory.