Imagine a business's money like a piggy bank. The acid-test ratio checks if there's enough easily-accessible money to pay its immediate bills. It's like seeing if a business has enough cash to cover what it owes soon.
It's a smart way to see how healthy a company is financially, kind of like a health check for a business.
It helps to know if a business can easily pay its short-term debts.
- The ratio shows if a company has enough quick cash.
- It uses cash, quickly sellable investments, and money owed to the business.
- A ratio above 1 is usually good; below 1 might mean trouble.
| Term | Meaning |
|---|---|
| Acid-test Ratio | Checks if a business has enough quick cash to pay bills. |
| Liquid Assets | Money and things easily turned into money (like selling stocks). |
| Current Liabilities | Bills the business needs to pay soon. |
