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Acid Test

A stern measure of a company's ability to pay its short term debts, in that stock is excluded from asset value. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.

Additional Comments:

Usually an acid test ratio of 1.0 or higher is considered satisfactory by lenders and investors.  Also referred to as the Quick Ratio.

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