Acid test ratio is another way of looking at liquidity

It has been argued that stock takes a while to convert to cash so a more realistic ratio would ignore stock

(Current assets – stock) : liabilities

1:1 seen as ideal

Again if it is too high means that the business is very liquid – may be able to use the cash for other activities to increase performance

If it is too low then the business may face working capital problems

Some types of business need more cash than others so acid test would be expected to be higher