What is Acid-Test Ratio?

The Acid-Test Ratio is a formula to provide an indication to investors of a company's profitability. The Acid-Test Ratio is found by adding Cash, Accounts Receivable and Short-term Investments (excludes inventory assets and prepaid expenses) to find the value of current quick assets that a company owns, then add together the company's total liabilities and divide both of these values by the smaller one to find the ratio.