What kind of financial ratios help manage cash flow?
Liquidity ratios measure the ability of a company to pay its bills. Generally, the higher the ratio, the more solvent the company. Working Capital (a.k.a. Net Working Capital) = Current Assets – Current Liabilities. By subtracting current liabilities (bills to be paid soon) from current assets (assets you’ll use to pay the bills), you’ll find out the amount of capital (money) that you have to work with in the short run. This is valuable for cash flow management. Comparing the net working capital at different times also helps to evaluate and plan the agency’s operations. If income is seasonal, for example, the net working capital calculation will quantify how much more money is available after the busy season, or how much of a shortfall to anticipate in the off-season. Current Ratio = Current Assets/Current Liabilities The current ratio is one of the most commonly used financial ratios. A current ratio of two (current assets which are double the amount of current liabilities) is often c
