How Liquid Is Your Business? Know Your Financial Viscosity

Are your business assets like a mountain spring or engine sludge?

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We’ve already looked at operating, or asset management ratios.  Liquidity ratios are another important set of financial indicators.  Every company needs the ability to pay bills as they become due. A company that does not have enough liquid assets to pay current liabilities will quickly find financial trouble.  Suppliers will demand quicker payment and deny credit which is company lifeblood.

  • The current ratio indicator shows how many times the company can cover or pay the bills that are coming due within the next year. Current assets such as cash, short-term investments and sometimes inventory are quickly converted to cash for bill payment. Generally, current liabilities are those due within the next twelve months.
  • The quick ratio only looks at assets that are cash or nearly cash and how many times that amount can cover bills that are immediately due.

Keep these ratios at greater than one-to-one or you may soon find yourself unable to pay your bills.

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About Michael Shelton

Your Business Coach Facilitating Delegation and Work Group Engagement Michael Shelton has over twenty-five years of business and military accomplishments, including extensive experience with one of the largest, publicly traded real estate investment trusts (REIT). He is a qualified business coach with assignments in cross-functional work group management, strategic planning, unit leadership, joint venture acquisitions, executive education, mentoring, training and merger integration. Michael has accumulated best practices for building committed work groups from more than $4 billion of capital markets transactions and commercial property development. He served as a commissioned officer and helicopter pilot in the U.S. Army, and earned his MBA from The University of Arizona. Michael has served as a major conference panelist and is the author of Cash Flow Rich, Winning Ways to Evaluate and Finance Real Estate. Today, he helps business owners get more work group engagement as President and CEO of Shelton Business Services, LLC in Scottsdale, Arizona. Disclaimer: I don't offer investment, legal or tax advice. Talk to your broker, accountant or lawyer for investment, tax and legal help. I might own stock in the companies I mention on-line. My posts, tweets and other on-line activity are my personal thoughts and don't represent my employer or company.
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2 Responses to How Liquid Is Your Business? Know Your Financial Viscosity

  1. Pingback: Four Essential Accounting Principles For Executives | Borrowing Money: Your Handy Guide

  2. Hi, I’ve been a lurker around your blog for a few months. I love this article and your entire site! Looking forward to reading more!

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