Acid-test ratio

What the exam boards say

• Cambridge 0452 and 0985, 2027 to 2029: listed. Formula as printed: (Current assets - Inventory) / Current liabilities; answer presented as a ratio.
• Cambridge, 2026 syllabus: listed. Formula as printed: (Current assets - Inventory) / Current liabilities.
• Pearson Edexcel 4AC1: named as "liquid (acid test) ratio"; the specification prints no formula.
• OxfordAQA 9215: named as "liquid capital ratio"; the formula is in OxfordAQA's separate guide, Formulae for accounting ratios.

Cambridge states that for 2027 to 2029 the printed formulas are the only ones accepted in candidate responses, so use the wording above for a Cambridge paper.

Sources: Cambridge IGCSE Accounting 0452: syllabus for 2027-2029 (Version 1), pages 18, 21; Cambridge IGCSE Accounting 0452: syllabus for examination in 2026 (Version 2, December 2025), page 19; Pearson Edexcel International GCSE in Accounting (4AC1) specification (FT Sept 2017) (Issue 1, October 2016), page 21; OxfordAQA International GCSE Accounting (9215) specification (FT Sept 2024) (Version 1.2), page 18. See all sources.

Worked example

(RM30,000 − RM12,000) ÷ RM15,000 = 1.2:1.

How to interpret it

Because inventory can be slow to sell, this is a stricter liquidity test. Around 1:1 is often seen as adequate.

Using it in analysis

The acid-test ratio, also called the quick ratio, asks whether a business can pay its short-term debts without selling any inventory. Compare it over three or four years and with a similar business, and look at the direction of travel.

A ratio steady at about 1:1 suggests the business can meet immediate debts from cash, bank balances and amounts owed by customers. A climbing ratio well above 1:1 may mean cash is sitting idle or receivables are building up. A falling ratio usually raises questions. Perhaps cash went into new equipment, or customers are paying more slowly.

Example: a trading business has current assets of RM120,000, of which inventory is RM70,000, and current liabilities of RM50,000. Quick assets are RM50,000, so the ratio is 1:1. A year later current assets are still RM120,000, but inventory has risen to RM95,000 and current liabilities are unchanged. Quick assets are RM25,000, so the ratio is 0.5:1. The business can now cover only half its immediate debts without selling stock.

Common mistakes: treating 1:1 as a rule every business must meet. Many sound businesses sell for cash, turn stock into money quickly, and operate safely below it. A high ratio is not always strength either, as it can show poor use of resources. The ratio also ignores the timing of cash flows and the quality of receivables, and it can be flattered by events just before the year end.

Read it with the current ratio. If the current ratio is 2:1 but the acid-test ratio is only 0.6:1, inventory makes up much of the current assets. A furniture retailer will show a much lower acid-test ratio than current ratio. A service business holds little inventory, so its two ratios are almost the same.

Limitations

It still assumes receivables will be collected promptly.

Related ratios

• Current ratio