The acid-test ratio also commonly known as the quick ratio, measures the liquidity of a company by calculating how well current assets can cover current liabilities. The quick ratio uses only the most liquid current assets that can be converted to cash within 90 days or less. The acid-test, or quick ratio, involves assessing a company's balance sheet to see whether it has enough funding on hand to cover its current debt.It is seen as more useful than the often-used current ratio since the acid-test excludes inventory, which can be hard to quickly liquidate.In the best-case scenario, a company should have a ratio of 1 or more, suggesting the company has enough cash to pay its bills.Too low a ratio can suggest a company is cash-strapped, but in some cases, it just means a company is dependent on inventory, like retailers.Become a supporter of this podcast: https://www.spreaker.com/podcast/investment-terms--4432332/support.

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