Accounting › Section D · Completing the accounting cycle › Topic D.3
Current ratio, working capital, and liquidity
A profitable company can still fail if it cannot pay the bills due next month. Sorting the balance sheet into current and long-term items lets you measure that risk with two simple tools: working capital and the current ratio.
In this topic
- Profit is not the same as cash
- The classified balance sheet: assets
- The classified balance sheet: liabilities
- Worked example: classifying Glenmarsh's items
- Working capital
- The current ratio
- Worked example: measuring two companies
- Worked example: how transactions move the measures
- Reading the numbers with care
- Common mistakes to avoid
- Key takeaways
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