Explore BrainMass

compute the acid-test-ratio

Search for three public companies that you may want to invest in. You may want to consider three companies in the same industry. Make sure they provide their financial information online. You could go to each company's website and look in the investor relations area. A better way is to research Yahoo Finance [], MSN Finance [], or Hoovers, or you may find some other sites. The advantage of these sites is that the income statement and balance sheet data is given in the same format for all three companies. Once you figure one out, you know how to read the others. Examine the companies' financial reports and include your notes on the information you find. Next, select two or three key financial ratios (such as Current Ratio, Acid-Test Ratio, Operating Ratio, Gross Profit Ratio, Asset Turnover Ratio, or Total Debt-to-Total Asset Ratio) to compare for all three companies. Either find the ratios in the financial data you research or calculate them from the financial data you find. Then discuss your companies' relative financial conditions, that is, discuss how they compare to each other. Lastly, research each company's outlook for the future based on the appropriate financial ratios and/or on summaries of discussions by industry gurus.
Sometimes the Acid-Test-Ratio will not be given directly. To compute the acid-test-ratio use the following formula: acid-test-ratio = (Cash + Accounts Receivable + Short-term Investments) / Current Liabilities
Finally, select a company that you would like to invest in. For each company, discuss at least two of these financial ratios.