This view about the hotels liquidity position. Examining inventory

This ratio has both advantages and disadvantages the acid test can benefit  the hotel in the long run because the acid test ratio takes away  supply’s  from the formula which may not be   examined as liquid  therefore  it gives  an  accurate view about the hotels liquidity position. Examining inventory can be difficult can you often find that it isn’t at a marketable value therefore the acid ratio is not obstructed because there is no need to look at the inventory. Inventory can change during anytime it can either increase or decrease the liquidity position by taking out the inventory from the formula the acid ratio does not include this problem. If a company has a big inventory the company’s financial strength can be overestimated if they decide to use current ratio however the acid test however there  are also reasons why using this formula would not help the hotels position. By using this formula, you may not be able to find out what the hotels liquidity position if this ratio is used. This formula also takes away supplies from the calculation, which may not benefit the business that value s a marketable price. This formula may not be good at showing solvency because the organisation could have a higher inventory to go the liquidity position  here’s what other accountants thought of this ratio “The acid test ratio ignores the level and the timing of the cash flows which actually would be a major parameter determining the company’s ability to pay liabilities when they become due” however another accountant think that  I think that it would good for the company to use the formula because this formula tells the hotel how much they have kept and lost and also tells us and gives and accurate view of the hotels liquidity position and also gives the hotel view without having to add inventory in. 

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