ShmoopTube

Where Monty Python meets your 10th grade teacher.

Search Thousands of Shmoop Videos


Regulations Videos 358 videos

Finance: What is Rescission?
6 Views

What is rescission? Hit play to find out.

Finance: What is Material Information?
8 Views

Materials information is important information pertaining to a securities transaction.

Finance: What is Arbitration?
5 Views

What is Arbitration? Arbitration is like court for the financial world. It is used to settle disputes between investors and their brokers. An inves...

See All

Finance: What is the Acid Test Ratio/Quick Ratio? 14 Views


Share It!


Description:

What is the Acid Test Ratio/Quick Ratio? The Acid Test Ratio is used to determine if a company can cover their liabilities in the short-term. It only uses liquid assets in its calculation because of the short-term nature. To find the acid test, or quick ratio, all current assets are divided by current liabilities.

Language:
English Language

Transcript

00:00

finance a la shmoop - what is the acid test ratio or the quick ratio quick how

00:08

liquid are we now the quick ratio is a measure of how well or not so well a [Water coming out of a tap]

00:13

company is positioned to be able to quickly pay off the bills that it owes

00:17

aka its liabilities... why the quickly in there because the assets used to pay off

00:24

the liabilities need to be quickly available assets like cash or bank CD's

00:29

or publicly traded stocks or bills the company will collect the next ninety [Assets appear]

00:35

days or so from people likely to pay them well the company likely owns other

00:39

assets like a tractor smelting company but like is it really gonna sell that [Internet mouse cursor clicks search bar]

00:44

smelter to then pay off its bill to U.S steel for steel....Ok well the actual ratio

00:50

looks like this cash plus sellable securities plus money people owe the

00:55

company divided by liabilities so basically the quick ratio compares your

01:00

total liquid assets to how much you owe and it's important to note that you [Forklift drops inventory on factory floor]

01:04

don't count your current inventory as part of your assets as it's typically

01:09

hard to sell everything you have right at this moment and then not at some huge

01:14

discount the higher the quick ratio the healthier the liquidity position of the

01:18

company another good way to test your liquidity well stand in front of a [Man showering]

01:22

radiator and see how quickly you evaporate [Girl stood by a radiator and begins to melt]

Related Videos

GED Social Studies 1.1 Civics and Government
39794 Views

GED Social Studies 1.1 Civics and Government

Fake News
11938 Views

How do you tell fake news from real news?

Finance: What is Bankruptcy?
260 Views

What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...

Finance: What is a Dividend?
1777 Views

What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...

Finance: How Are Risks and Rewards Related?
589 Views

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...