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Acid Test Ratio Formula

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The acid test ratio is a strong indicator of whether a firm has sufficient short-term assets to cover its immediate liabilities. Check FAQs

ATR = \frac{C + AR + STI}{CL}

ATR - Acid Test Ratio?C - Cash?AR - Accounts Receivable?STI - Short Term Investments?CL - Current Liabilities?

Acid Test Ratio Example

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Here is how the Acid Test Ratio equation looks like with Values.

Here is how the Acid Test Ratio equation looks like with Units.

Here is how the Acid Test Ratio equation looks like.

2 = \frac{1000 + 2000 + 3000}{3000}

2 = \frac{1000 + 2000 + 3000}{3000}

2 = \frac{1000 + 2000 + 3000}{3000}

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Acid Test Ratio Solution

Follow our step by step solution on how to calculate Acid Test Ratio?

FIRST Step Consider the formula

ATR = \frac{C + AR + STI}{CL}

Next Step Substitute values of Variables

∴

ATR = \frac{1000 + 2000 + 3000}{3000}

Next Step Prepare to Evaluate

∴

ATR = \frac{1000 + 2000 + 3000}{3000}

LAST Step Evaluate

∴

ATR = 2

Acid Test Ratio Formula Elements

Variables

Acid Test Ratio

The acid test ratio is a strong indicator of whether a firm has sufficient short-term assets to cover its immediate liabilities.

Symbol: ATR

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Acid Test Ratio

Cash

Cash is the money or currency that can be accessed immediately.

Symbol: C

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Cash

Accounts Receivable

Accounts Receivable is the money owed to a company by providing the services.

Symbol: AR

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Accounts Receivable

Short Term Investments

Short Term Investments is the account in the current assets section of a company balance sheet.

Symbol: STI

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Short Term Investments

Current Liabilities

Current Liabilities are the company debts or obligations that are due within one year.

Symbol: CL

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Current Liabilities

Other formulas in Important Formulas of Business category

Go Break-Even Point

BEP = \frac{FC}{CM}

Go Return on Capital Employed

ROCE = (\frac{EBIT}{TA - CL}) \cdot 100

Go Solvency Ratio

SR = \frac{SF \cdot 100}{TA}

Go Economic Order Quantity

EOQ = (\frac{2 \cdot Cf \cdot Demand}{C h}) \cdot (\frac{1}{2})

How to Evaluate Acid Test Ratio?

Acid Test Ratio evaluator uses Acid Test Ratio = (Cash+Accounts Receivable+Short Term Investments)/Current Liabilities to evaluate the Acid Test Ratio, The Acid Test Ratio is a strong indicator of whether a firm has sufficient short-term assets to cover its immediate liabilities. Acid Test Ratio is denoted by ATR symbol.

How to evaluate Acid Test Ratio using this online evaluator? To use this online evaluator for Acid Test Ratio, enter Cash (C), Accounts Receivable (AR), Short Term Investments (STI) & Current Liabilities (CL) and hit the calculate button.

FAQs on Acid Test Ratio

What is the formula to find Acid Test Ratio?

The formula of Acid Test Ratio is expressed as Acid Test Ratio = (Cash+Accounts Receivable+Short Term Investments)/Current Liabilities. Here is an example- 2 = (1000+2000+3000)/3000.

How to calculate Acid Test Ratio?

With Cash (C), Accounts Receivable (AR), Short Term Investments (STI) & Current Liabilities (CL) we can find Acid Test Ratio using the formula - Acid Test Ratio = (Cash+Accounts Receivable+Short Term Investments)/Current Liabilities.

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Acid Test Ratio Formula

Acid Test Ratio Example

Acid Test Ratio Solution

Acid Test Ratio Formula Elements

Other formulas in Important Formulas of Business category

How to Evaluate Acid Test Ratio?

FAQs on Acid Test Ratio

Variable Name