The Acid-Test Ratio is a financial metric used to assess a company's short-term liquidity. It measures a company's ability to pay off its current liabilities without relying on the sale of inventory. The formula for the acid-test ratio is: (Current Assets - Inventory) / Current Liabilities. A ratio of 1 or higher indicates that a company can cover its short-term obligations. This ratio is particularly important for investors and creditors as it provides insight into a company's financial health. Unlike the current ratio, which includes inventory, the acid-test ratio focuses on more liquid assets, such as cash and accounts receivable, making it a stricter measure of liquidity.