ShmoopTube
Where Monty Python meets your 10th grade teacher.
Search Thousands of Shmoop Videos
Regulations Videos 358 videos
Materials information is important information pertaining to a securities transaction.
What is Arbitration? Arbitration is like court for the financial world. It is used to settle disputes between investors and their brokers. An inves...
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.
- Social Studies / Finance
- Finance / Financial Responsibility
- College and Career / Personal Finance
- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Accounting
- Terms and Concepts / Banking
- Terms and Concepts / Bonds
- Terms and Concepts / Careers
- Terms and Concepts / Company Management
- Terms and Concepts / Company Valuation
- Terms and Concepts / Credit
- Terms and Concepts / Financial Theory
- Terms and Concepts / Metrics
- Terms and Concepts / Regulations
- Terms and Concepts / Tax
- Terms and Concepts / Trusts and Estates
- Terms and Concepts / Wealth
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
Full Transcript
- 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
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...
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...
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...