Acid Test Ratio

Certified Inventory Optimization Professional (CIOP) is an end-to-end supply chain certification program. The certification consists of 30 modules focusing both on traditional and futuristic topics. The traditional topics are introduction to supply chain management, all about inventory, strategic business planning, forecasting, demand management, capacity management, sales and operations planning (S&OP), master scheduling (MPS), materials requirements planning (MRP) and production activity control (PAC). It also includes topics on procurement, warehousing, transportation, distribution, and packaging. The topic on the future trends such as Blockchain, Internet of Things (IoT), Robotic Process Automation (RPA), Machine Learning (M/L) and Artificial Intelligence (AI). There is a significant focus on supporting technologies such as forecasting and process mapping tools such as Microsoft Visio. In addition to the above indicated topics the participants need to master over 3000 terminologies in supply chain management.

The acid test ratio or the quick ratio measures the amount of current marketable securities (stocks) per current inventory (brokerage balance). The calculation of this ratio determines the market value of the company as represented by the market capitalization. A high ratio indicates that the market value of the company is declining while a low ratio indicates that the market value is increasing. The calculation of this ratio is usually done by dividing the current market value of the stock by the current outstanding balance.

The acid ratio, also referred to as the Quick Ratio, compares the amount of cash, current marketable securities, and current tangible assets of a business to its total current liabilities. The formula used in the calculation of this ratio uses the arithmetic mean of the ratios of marketable and non-marketable securities. A high ratio indicates that the business has more assets than its liabilities while a low ratio indicates that the company has more liabilities than its assets. The calculation of this ratio is usually done by dividing the current assets / total assets of the business by the current liability / total liabilities.

Other factors that may affect the value of stock are cash flows, inventory levels, discount rates, interest rates, fair value of investments, and the cost of the assets or liabilities. The accuracy of this ratio is affected by the overall financial health of a business. The companies with the best performance are likely to have higher ratios. This is because they have high levels of investment in marketable securities. If the inventory levels are low, it may result in underpricing of stock and, hence, lower profits and higher losses.

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