Liquidity measures and Working Capital

Let’s figure out how your working capital and liquidity will influence your business's amount of money at the end of the month! 🤯

In our last two postings, we discussed assets and liabilities and the different types you can have as a business in the fashion sector. This posting will explain how the two work together to give you your working capital and ensure you have money at the end of the month!

Your working capital: the difference between a business’s assets and liabilities. It measures your company’s liquidity for its day-to-day operations.

Your liquidity: the ability (ease and speed) to convert assets into cash.

If you want to check the liquidity of your company and ensure you can meet the short-term financial obligations of your business, calculate using these three liquidity ratios:

• Working Capital Ratio (a.k.a. Current Ratio)

• Quick Ratio (a.k.a. Acid Test)

• Cash Ratio

Check the pictures below to know how to calculate them!

The next posting will examine how different accounting methods can indicate differing levels of liquidity and cash flow for your business.