Ignoring Cash Trends
“I look at the money in my operations account every day.”
Yes, you should be doing this to spot irregularities in your operating account. However, looking at cash in the bank doesn’t give you the overall trends of your business as they relate to cash.
You get money in and you write checks or send ACH payments almost every day. Is the cash flow trending in a positive manner? This is almost impossible to see when you look at your bank accounts on-line every day.
What are the major cash trends? Working Capital and Current Ratio – both of these trends are calculated from your balance sheet.
First, definitions:
Current assets are assets that are cash or turned into cash within a year.
Current liabilities are liabilities that must be paid within a year.
Working capital is current assets minus current liabilities.
Current ratio is current assets divided by current liabilities.
Above is a company with a healthy cash flow trend.
What do your company’s current ratio and working capital trends look like?
Find out in less than five minutes with Financially Fit Business.
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