Formula reference—Liquidity ratios

Current ratio = current assets ÷ current liabilities. Acid-test ratio = (current assets − inventory) ÷ current liabilities. Write the formula before substituting values and use the same accounting definitions.

A ratio is meaningful only when the numerator and denominator refer to the same date and reporting basis. Compare trend and context rather than chasing a memorised target.

If current assets are 120, inventory 50 and current liabilities 80, the current ratio is 1.5 and the acid test is 0.875.

A mechanically correct calculation can still mislead if receivables are doubtful or liabilities are due immediately.