Smith Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Smith’s acid-test ratio?
The acid-test ratio is similar to the quick ratio in many regards. However, the ratio looks at only the” liquid” assets. Liquidity is a measure of how quick an asset can be transformed into cash. Quick Ratio = (Current assets – Inventory)/Current Liabilities. Current liabilities will be given by $11400/2.6=$4385. the quick ratio will then be (114000 – 4000)/4385 =
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