• The acid test, or quick ratio, compares a company’s shortest-term assets to its shortest-term liabilities to see if the company has enough cash to pay off its immediate liabilities, such as short-term debt.

  • The acid ratio does not take into account current assets that are difficult to liquidate quickly, such as inventory.
  • The acid ratio may not give a fair picture of a firm’s financial health if the company has receivables that take longer than usual to pay off, or current liabilities that are due but do not require immediate payment.