Definition
The acid-test ratio is a stricter liquidity ratio that excludes less-liquid current assets. It focuses on cash-like assets versus current liabilities.
Formula
Acid-test ratio = (cash + marketable securities + receivables) / current liabilities
Example
If cash + receivables are $900k and current liabilities are $600k, the ratio is 1.5x.
How to use it
- Use it when inventory is significant and you want a stricter liquidity lens.
- Receivables quality matters; aging and bad debt risk can distort the ratio.
- Track the ratio alongside DSO to catch collection slowdowns early.
Common mistakes
- Counting slow or doubtful receivables as liquid.
- Using a single snapshot without trend context.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Acid-test Ratio (Quick Ratio)" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Cash conversion cycle: turn working capital into runway) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Loan Payment Calculator: Compute monthly payment, total interest, and total paid for a loan using amortization.
- APR to APY Calculator: Convert APR to APY (and APY to APR) given compounding frequency.
- Real Return (Inflation-adjusted) Calculator: Convert nominal return into real return given an inflation rate (and compare the difference).
- Deferred Revenue Rollforward Calculator: Bridge billings to recognized revenue by rolling deferred revenue forward for a period.
- Break-even Revenue Calculator: Estimate the revenue needed to break even given fixed costs and gross margin.
Guides
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.