How do you calculate the quick ratio or acid test?
The quick ratio is a liquidity test that unlike the current ratio, excludes inventory and prepaid assets. This is considered an even more severe liquidity test than the current ratio as inventory is considered the least liquid of all current assets.
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How do you calculate the current ratio?
The current ratio indicates the number of times current assets will exceed current liabilities to measure short-term solvency. This is a ratio that will help determine whether a firm has the ability to meet its short-term obligations.