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Finance GlossaryAcid Test Ratio
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Acid Test Ratio

Definition of Acid Test Ratio

An Acid Test Ratio shows whether a company has enough liquid short-term assets to deal with current liabilities.

The higher the Acid Test Ratio the better a company’s ability to deal with debt.

Acid Test Ratio = (Cash + Marketable Securities + Accounts Receivable)/Current liabilities

Related Terms

Circuit Breaker

A circuit breaker or market curb is a measure that exchanges use to put a stop to all trading activities across an index or entire market. This regulatory measure is put in place to curb panic selling, especially when markets are in free fall.

That’s why circuit breakers are also known as trading curbs and are put in place when an index or market reaches a specific level. These are the current circuit breaker limits on NSE:

Circuit Breaker Trigger Trading Halt Duration
10% 0-45 minutes
15% 45 minutes; 1 hour 45 minutes; rest of the day
20% Rest of the day

Liabilities

Liabilities are debt that a company owes to individuals or financial institutions in the form of bonds, debentures, salary, tax, and others.Liabilities play an important role in the balance sheet of a company as it signals competence to existing and prospective stakeholders.

Free Cash Flow

Free float market capitalization is the market cap of a company based on the total freely available publicly traded outstanding shares. The formula to calculate free float market capitalization is:

Free float market capitalization = Share Price x (Number of Shares Available for Trading – Private and Locked-In Shares)

When calculating the free float market cap of a company, the number of shares held privately or the shares that are locked-in are not taken into account. Typically, these shares are held by promoters and the government.

Forward Price

The forward price is the final value at which a forward contract is exercised, that is, delivered to the buyer by the seller. It is different from the spot price of the underlying asset as it includes the cost of carry like interest rates, storage cost, and other carrying charges. The formula to calculate forward price is:

Forward price: Spot Price − Cost of Carry (storage costs, interest rate, etc)

Index Futures

Index futures are derivative instruments that track an underlying sectoral, thematic, or benchmark index like Nifty Bank, Finnifty, Nifty 50, and others. While trading index futures, a trader avoids individual share risk by trading an entire index.

BSE

Bombay Stock Exchange or BSE is a stock exchange that allows companies to issue new securities through IPOs or FPOs and enables traders & investors to buy and sell securities like shares and ETFs. Established in 1875 under a banyan tree in Mumbai, BSE is the oldest stock exchange in India and Asia.



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