Current Assets

A section of the assets side of the balance sheet. It refers to cash and cash equivalents such as receivables, inventory, and investments.

Liquidity Ratios

Liquidity Ratios

Liquidity ratios are a group of ratios used to measure the ability of a business operation to meets its current obligations.   Liquidity ratios are similar to the initial medical tests a patient receives at a doctor’s visit.   Doctors take blood pressure, temperature, and pulse rate.   The doctor wants assurance that the primary indicators of health are good.  Liquidity ratios are exactly the same.  The user wants to know that the basic measurements of a business indicate good health today.

Insolvency – Detection


Insolvency refers to the ability to pay bills in a timely manner.  It does not mean bankruptcy but long-term insolvency is a underlying factor of bankruptcy.  Many owners and/or managers of small business have no idea of how to determine if the company is insolvent or headed towards the inability to meet their day to day obligations.

Working Capital Turnover

Working Capital Turnover

The activity ratios measure performance of a current asset on the balance sheet against a corresponding area of the income statement.  The working capital turnover is the most encompassing of all the activity ratios; in effect, it is the most general of the activity ratios.   This particular ratio measures the ability of management to efficiently utilize net current assets. 

Working Capital Management – Production and Sales Flow

Working Capital Management

There is no single management style to address the multitude of working capital cycles existing in the various business sectors and the underlying industries.  Taking raw resources and turning them into consumer goods has different time frames depending on the item produced.  In addition, the sales period varies from product to product.  Compare the production and sales cycle for an automobile to that of ice cream.

Current Ratio

Current Ratio

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 in reading financial statements, its purpose and the many drawbacks for its use with small business.

Working Capital Cycle

Working Capital Cycle

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 long-term setbacks.  Since it is a balance sheet based formula the value is a function of a moment in time.

EBITDA – Buyer Beware (Case Study)


This article will illustrate the opposite effect using the same business information.   A buyer of a business should be leery of financial information and look for improper accounting processes.   The goal is to reduce the operational income and ultimately the value of the business.   The goal is to get the business valuation to a realistic number.

Bookkeeping – Proper Balance Sheet Presentation (Lesson 20)

Balance Sheet Presentation

The balance sheet serves as an historical report.  It identifies the accumulated change in value since inception.  The balance sheet is organized into two halves and both sides must be equal in value.  In addition, the balance sheet is a snapshot of the financial condition at a single moment in time along the lifetime timeline of the company.

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