Which ratio is also known as the acid-test ratio?

The quick ratio is also known as the acid-test ratio.

It measures whether a company could cover its current liabilities with highly liquid, near-cash assets. The traditional formula adds cash and cash equivalents, marketable securities, and accounts receivable, then divides that total by current liabilities. Because inventory and prepaid expenses may take longer to convert into usable cash, they are generally excluded.

The name “acid-test” invokes an old assay technique in which acid was used to test whether metal was genuine. In financial analysis, the metaphor emphasizes a stricter test of liquidity than the current ratio. A quick ratio of 1.0 means quick assets equal current liabilities; a figure below 1 does not automatically mean insolvency, because collection timing and supplier terms also matter.

The exact definition of “quick assets” can vary by accounting convention. Some analysts exclude receivables that are doubtful or slow to collect. The cash ratio is narrower, using only cash and cash equivalents, while the current ratio includes inventory and other current assets.