By Judith Miller. Cash ÷ Current Liabilities
As the name implies, this liquidity ratio is the most demanding because it measures current liabilities against cash alone. In other words, it monitors the danger of running out of cash. Although a ratio of 1.0 indicates the ability to pay off all current liabilities with cash, most remodeling companies don't need such stringent cash control. Anything above .75 is sufficient. The trend of this ratio is most important -- a falling trend often predicts serious problems. --Judith Miller is a Bay area construction business consultant and trainer.
