Financial ratios have been helping business leaders make sound financial decisions. Liquidity ratios are critical financial metrics that provide valuable insights into a company’s ability to meet its short-term financial obligations.
Two of the most common liquidity ratios are the current ratio and the quick ratio. As your trusted provider of reliable financial management in Ohio, let us explain how your business can benefit from understanding these metrics.
The current ratio measures a company’s ability to cover its short-term liabilities with its short-term assets. It includes assets like cash, accounts receivable, and inventory, making it a useful indicator of a business’s overall liquidity.
On the other hand, the quick ratio, also known as the acid-test ratio, is a more conservative measure. It excludes inventory from the calculation, focusing solely on the most liquid assets. This ratio offers a more stringent assessment of a company’s ability to meet its immediate obligations.
Did you know there are other metrics you can use? These common liquidity ratios are just the start. Consult us for more information.
Damawa Tax & Accounting Services, LLC highlights the importance of understanding and regular monitoring of these liquidity ratios. Businesses can make prudent decisions regarding financing, investments, and day-to-day operations through the insights of these numbers.
Getting these insights starts from reliable accounting & bookkeeping services in Ohio. Do you need help setting up and maintaining your financial processes? Consult our team.