Acid Test Ratio and Net Profit Margin Ratio

Net Profit Margin Ratio Formula

(Net Profit/Sales Revenue) * 100

Use of Net Profit Margin Ratio

It is often used to measure the performance of a company and its management team.

Use of Acid Test Ratio

It's mainly used to indicate whether a business has enough short-term assets to pay off its current liabilities.

Acid Test Ratio Formula

Liquid assets / current liabilities

Acid Test Ratio

it's a stricter test of a firm's liquidity. It eliminates stocks, and by doing this it gives the company a given a clearer picture of the firm's ability to pay short term debts.

Net Profit Margin Ratio

used to assess how successful the management of a business has been at converting sales revenue to net profit. It is often used to measure the performance of a company and its management team.