The acid test ratio of a firm measures its liquidity. Specifically, it evaluates a company's ability to pay off its short-term debts using its most liquid assets (such as cash, marketable securities, and accounts receivable) without relying on the sale of inventory. In other words, it indicates whether a company has enough readily available resources to cover its immediate financial obligations. A higher acid test ratio suggests that a company is more capable of meeting its short-term liabilities, while a lower ratio indicates a higher risk of default. Therefore, the acid test ratio is an important financial metric for investors and creditors to assess the financial health and stability of a company.