Recent Articles

Quick Ratio

The text book definition is current assets less inventory, divided by current liabilities. It is an ineffective tool for the small business using this definition. The small business owner should use cash divided by current liabilities less current portion of long term debt. It is strictly designed to define the ability to pay your bills right now.

Current Ratio

02/22/2017

The current ratio is an inappropriate relationship to use or rely on in small business.   The ratio is best suited for large publicly traded organizations.   This article explains the basic formula for the current ratio, how to identify the ratio [...]

Working Capital Cycle

02/13/2017

The college textbook definition of working capital is current assets minus payables and accrued expenses.  The term explains the dollar value of flexibility a business operation has to take advantage of immediate opportunities or endure sudden or [...]

EBITDA – Drawbacks

02/13/2017

This is Part III in a 3-part series.  Please read Parts I and II before continuing: EBITDA – Part I  standard formula and income statement adjustments EBITDA – Part II  balance sheet impact There are several business financial [...]

Working Capital Management

01/01/2016

Working capital management is a function of finance whereby management ensures adequate cash is available to meet operational needs over the typical working capital cycle.   The underlying elements of working capital management include 1) [...]

Insolvency and Bankruptcy – Know the Difference

02/01/2014

Every business owner needs to know the difference between insolvency and bankruptcy.  Often these two terms are misunderstood and improperly used in conversation.  You need to know their correct meaning because both are used in civil law and both [...]

Quick Ratio – Definition, Explanation and Proper Use

01/14/2014

The quick ratio is a formula used in business to identify the ability of a business to pay its current liabilities.  It is also known as the ‘Acid Test’ formula (ratio).  In the large markets this formula is one of the financial industry [...]