![]() ![]() Generally, a current ratio of 1.0 means that a company’s liabilities do not exceed its liquid assets, though this can vary by industry. Healthy current ratio: A business with a healthy current ratio can typically meet its short-term demands and still have enough cash to invest or expand.Here’s what counts as healthy, high, or low. They generally want to know that you have cash flow under control, you spend responsibly, and you pay off your debts. Lenders and investors may use liquidity ratio calculations to determine how healthy your business is. To calculate your business’s liquidity ratio, you’ll be dividing the assets (current, quick, or cash) by business liabilities (debts/obligations). The former factors in only the business assets that can be accessed relatively quickly, and the latter focuses even more narrowly, comparing obligations to only cash and cash equivalents. Sometimes, lenders and investors will also look at your quick ratio or your cash ratio. This compares all of the business’s current assets to all of its current obligations. One of the most common types of liquidity ratios used to determine a company’s financial health is the current ratio. ![]() While this may sound fairly simple, there are several ways to calculate a business’s liquidity ratios. The better a business’s liquidity ratio, the more attractive it will be to lenders and investors, both of which can be extremely important for growth. Cash is generally the most liquid asset because it’s available at the touch of a few buttons on an ATM pad or a digital app - or sometimes in your wallet. The easier an asset is to access quickly, the more liquid it is. It’s also important to maintain a strong liquidity ratio, which indicates the business is able to pay off its existing debts with its existing assets. Here’s what owners should know (and do) about it.Ī steady stream of cash is key to a successful business, but that’s just one part of the entire financial picture. Lenders and investors often use this metric to assess a company’s financial health. ![]()
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