Acid Test Ratio
(Liquid Capital Ratio).
Formula
(Current Assets − Inventory) ÷ Current Liabilities
Real World
A supermarket like Tesco holds vast inventory that cannot be quickly converted to cash, so its acid test ratio is significantly lower than its current ratio — revealing a truer liquidity picture.
Exam Focus
Always state why inventory is excluded; examiners expect you to reference its illiquid nature explicitly.
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