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Financial statement analysts among others compute ratios to gauge how the company is performing. One such ratio is the Acid-test(or Quick) Ratio. Provide the formula

Financial statement analysts among others compute ratios to gauge how the company is performing. One such ratio is the Acid-test(or Quick) Ratio.

Provide the formula for the Acid-test ratio and explain why inventories and prepaid expense are excluded from this calculation.

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