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Chapter 5. Position > Checking the Balance: Ratios

Checking the Balance: Ratios

Now that you have a basic understanding of the items contained in the income statement (from the previous chapter) and contained in the balance sheet, it is time to compare the size or proportion of different items to each other. This comparison is known as checking the balance, or the ratios, of an organization. Ratios tell Senior managers and savvy WLP professionals where problems exist and can hint at what interventions might create the most value by bringing the items back into balance.

Current and Quick Ratios

The goal for any company is to keep its ratios of assets to liabilities above one, or, in other words, to have more assets than liabilities such that there are no restrictions in normal business activities due to a shortage of cash and no embarrassment of having to put off creditors. These proportions are often expressed as the current ratio or the quick, or liquidity, ratio.


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