Another name for the quick ratio, measuring a company's ability to pay immediate debts without relying on inventory sales. The term emphasizes the stringent nature of this liquidity test.
Metaphor borrowed from gold mining, where nitric acid was used to test gold purity - fake gold would dissolve while real gold remained. Applied to finance in the early 1900s to describe the most rigorous test of a company's financial strength.
The acid test literally saved investors during the dot-com crash - companies with high current ratios but low acid-test ratios were sitting on worthless inventory (like pets.com's dog toys) that couldn't be converted to cash when needed!
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