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.
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 […]