Liquidity ratios |
Quick RatioOtherwise known as acid ratio, this measures the business’ liquidity by taking cash and receivables and dividing it by current liabilities or short-term liabilities of the business. Remember, this method of measuring liquidity does not take inventory or stock into account. Current RatioHistory has it that, current ratio is among the oldest methods of measuring the business’ short-term financial strength. This method takes the value of current assets and divide it by the value of current liabilities. The way to interpret this information is that if you end up with a current ratio of more than 1 then it means that your business is at least able to meet its short-term obligations in terms of covering its bills. Say for example if you get 2.1, it means that the business has at least twice the amount of current assets as it has current liabilities. By implication, the business is doing good. If you get a number bellow 1 for either current ratio or quick ratio, you should be concerned about your business’ short-term financial health. |
RELATED ARTICLES:
How to measure your business financial position and performance
As mentioned in the previous postings, accounting comes in two forms: Financial accounting - which is concerned with providing the overall financial picture of the business' financial position and performance. and Management Accounting - which is conc
The difference between Accounting and Business finance
So far you might have seen a lot of overlap between our Accounting and Business sections. After all, they both talk about financial statements and reporting. So where exactly is the difference between the two? Well, Accounting - deals with collecting, analyzing and communicati
Asset Management ratios
Talk to every business person and you are likely to hear that assets are the most important component of every profitable business. The trick however lies in determining whether the assets that the business owns are used efficiently. This is where Asset management ratios come into play. Bello
Business finance - Basics
Anyone who runs a business will tell you that you can not start a business with nothing. Every business is started with money or something with a monetary equivalent. Suppose you decide to start a business to produce and sell fresh vegetables. To do this, you either hire people to hel
Business Insurance coverage
Protecting business assets should be a primary concern of every business owner. As a matter of fact, before you even open your doors to customers you should speak to an insurance agent about ways to protect your business from unforeseen business risks. These risks range from workers compensation ins
Business Operations and the Environment
Running a business effectively require managers to fully understand what they are trying achieve. In other words managers or business owners have to develop a clear vision of how the business operations should help the business attain its long-term goals. This also means identifying the role
Doing Business on the Internet
How online business has evolved In the last decade, the Internet has transformed from merely a research tool for academics to a flourishing business platform. A platform where the difference between big corporation a
Legal Business Forms
Now you are ready to start a business, you have fully or partially secured your starting capital. You have also done your market research and concluded that your business idea is viable. Now what? Now you have to register your business. There are several advantages to registering your business as le
New Business Planning
Many people starting out in business write business plans with the sole purpose of convincing financier or investor that their idea is worth investing in. Sometimes they outsource such work to outsiders with little or no input of their own. This however should never be the case. Many businesses that
Prepare your business to survive a bad economic condition
Economies all over the world are experiencing a decline, businesses are laying off employees in order to cut costs and stay profitable. Those who retain their jobs are faced with rocketing food and gas prices. When you are an owner of a small business, the challenges are even greater. Under these ci