Also referred to as Quick ratio, the acid-test ratio is more stringent measure of liquidity because inventories, which are least liquid of current assets, are excluded from the ratio. Inventories have to go through a two-step process, first being sold and converted into receivables and secondly collected. The quick test is so named because it gives the ability of the firm to pay its liabilities without relying on the sale and recovery of its inventories. The current ratio is computed as:

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