This comparison is akin to comparing two safety nets designed to catch a business should it stumble. The current ratio, including all current assets, may seem like a broader, more comforting safety net. Yet, it can be deceptive, potentially including assets that aren’t readily liquidated. For instance, the inventory might not convert to cash without a significant discount. Obviously, as the ratio increases so does the liquidity of the company. This is a good sign for investors, but an even better sign to creditors because creditors want to know they will be paid back on time. Colgate – Calculate Current Ratio and Quick Ratio The bank will now look at more ratios to think over whether to lend a loan to Paul to expand his business. Here, if you notice, everything is taken under current assets except inventories. A very high quick ratio, such as three or above, is not always a good thing. Small businesses are prone to unexpected […]