Acid-Test Ratio

A comparison of the sum of a company’s cash, cash equivalents, and accounts receivable to its current liabilities to evaluate its ability to pay off short-term obligations without relying on inventory or other assets.

For example, a company with $100,000 in cash and accounts receivable and $80,000 in current liabilities would have an acid-test ratio of 1.25, indicating it can cover its near-term obligations.