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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.

Working Capital Management


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


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


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 [...]