Checking Your Cash Status
Let’s start with the liquidity ratios. These ratios allow you to test whether your company can meet its financial obligations. If you can’t pay your bills, your business won’t be alive for long. There are two commonly used liquidity ratios: Current Ratio and Quick (Acid Test) Ratio.
Current Ratio compares current assets to current liabilities to give a quick glimpse at your business’s ability to pay bills. Quick (Acid Test) Ratio is similar to the Current Ratio, but does not include Inventory. Inventories are the least liquid of the current assets and some believe they should not be included when assessing ...