Etherwood Ltd has current assets of £135,000. This includes inventory of
£30,000. The firm’s current liabilities for the same financial period are
£70,000. The firm’s net assets are £300,000.
What is the acid test ratio for Etherwood Ltd (to 2 decimal places)?

The **acid test ratio** (or quick ratio) measures a company's ability to cover its current liabilities without relying on the sale of inventory. The formula is:

\[
\text{Acid Test Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}
\]

Given:
- Current assets = £135,000
- Inventory = £30,000
- Current liabilities = £70,000

Now, substitute the values into the formula:

\[
\text{Acid Test Ratio} = \frac{135,000 - 30,000}{70,000} = \frac{105,000}{70,000} \approx 1.50
\]

So, the **acid test ratio** is **1.50**.

Would you like more details on this, or do you have any other questions?

Here are five related questions for further understanding:
1. What does an acid test ratio of 1.50 indicate about Etherwood Ltd's liquidity?
2. How does the acid test ratio differ from the current ratio?
3. What is considered a good acid test ratio for companies in general?
4. How does the inclusion of inventory impact liquidity ratios like the current ratio?
5. How would a change in current liabilities affect the acid test ratio?

**Tip:** A higher acid test ratio (typically above 1.0) suggests better short-term financial health.

Etherwood Ltd has current assets of £135,000. This includes inventory of £30,000. The firm’s current liabilities for the same financial period are £70,000. The firm’s net assets are £300,000. What is the acid test ratio for Etherwood Ltd (to 2 decimal places)?

Discover how to calculate the acid test ratio for Etherwood Ltd, using its current assets of £135,000, inventory of £30,000, and current liabilities of £70,000. This guide provides a step-by-step breakdown of the formula to assess liquidity, ideal for students in Grades 10-12.

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