What do you understand by the Acid Test Ratio in Finance?

Acid Test Ratio is basically a financial metric used by businesses to measure its ability to be able to meet all its short-term liabilities and obligations. It is calculated by the dividing the sum of the most liquid assets of the firm by its short-term liabilities. Inventory is not included as it cannot be converted into cash. It is a vital measure of the liquidity of an organization.

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