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.
Far and above the most valuable liquidity ratio is the operating cash ratio. Unlike the other liquidity ratios that are balance sheet derived, the operating cash ratio is more closely connected to activity (income statement […]