armember-membership domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114ARMember domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/wanrru6iyyto/public_html/wp-includes/functions.php on line 6114The current ratio is an inappropriate relationship to use or rely on in small business. The ratio is best suited for large publicly traded organizations. This article explains the basic formula for the current ratio, how to identify the ratio with reading financial statements<\/span><\/strong>,<\/a> its purpose and the many drawbacks for its use with small business. Finally some alternative measurement tools are presented for use in small business evaluation instead of the current ratio.<\/span><\/p>\n One of the primary business requirements is the payment of bills (accounts payable) and other operational costs (labor, taxes, facilities, office expenses etc.) on a regular basis (weekly and monthly). These costs are commonly referred to as current liabilities<\/span><\/strong><\/a> (due within one accounting cycle – a month, quarter or a year). Current assets<\/span><\/strong><\/a>, specifically cash, are used to fulfill the payment of current liabilities. Naturally the more current assets in existence, the easier and the likelier the current liabilities will get paid in a timely fashion.<\/span><\/p>\n The formula is relatively simple and easy to understand:<\/span><\/p>\n Current Ratio = \u00a0Current Assets\u00a0 \u00a0 \u00a0 \u00a0<\/span><\/span> It is commonly quoted as a value to another value in its simplest mathematical state, like 3 to 1 or 3:1. This means there are three times as many current assets as there are liabilities. A 3:1 ratio is very good. Large publicly traded companies typically carry ratios of 4:1 or higher. Small businesses often have ratios of 2:1 or less.<\/span><\/p>\n Because current assets comprise more than just cash, it is often difficult to meet the timing requirements of the various short-term obligations. Vendors and suppliers want cash as payment. To understand this, let’s illustrate the formula after reading a simple set of financials<\/span>.<\/span><\/p>\n The following is an example balance sheet to illustrate the formula and then explain some issues associated with using the current ratio in small business.<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0DIAMOND TIRE CENTER<\/strong><\/span> LIABILITIES<\/span><\/strong><\/span> The formula requires two values, current assets and current liabilities.\u00a0 The result is:<\/span><\/p>\n Current Ratio = Current Assets\u00a0 \u00a0 \u00a0<\/span><\/span> Current Ratio = $89,100<\/span><\/span> Current Ratio = 1.27:1<\/span><\/p>\n A question exists: is this a good or poor current ratio? I will reiterate my opening statement; ‘The current ratio is an inappropriate relationship to use or rely on in small business’. The drawbacks explained below will confirm this statement. For now, this section is simply illustrating how to calculate the ratio by reading the financial statement (balance sheet).<\/span><\/p>\n To comprehend the merit of this ratio, the reader must first\u00a0understand its purpose.<\/span><\/p>\n Most business individuals use the tool to evaluate the short-term ability of a business to continue operations. The higher the ratio the longer the business can operate without some form of working capital<\/span><\/strong><\/a> infusion. More sophisticated business investors use the ratio to compare similar investments and the short-term financial strength. Again, this is referring to publicly traded corporations like mid-caps and large cap companies. Penny stock<\/span><\/strong><\/a> investments are still too small to utilize the current ratio as a reliable decision tool for investment purposes.<\/span><\/p>\n The following is a list of various uses of the ratio; some of which have been explained.<\/span><\/p>\n A) It can be used as a comparison tool to evaluate short-term financial strength of a publicly traded company.<\/span> The ratio is restricted to a limited scope of business financial status. Thus for small business its drawbacks overshadow any information gleamed from its value as explained below.<\/span><\/p>\n As stated before, the current ratio is inappropriate when referring to small business. The primary reason is economy of scale. To illustrate this, look at the ratio when a small business pays its accounts payable. In this case, the business pays $10,000 of its accounts payable.<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 ABC Inc. Notice that after paying $10,000 in accounts payable one day later, the ratio is an impressive 5.85:1, nearly double the day before.<\/span><\/p>\n Now, let’s see what happens when the magnitude of the balance sheet is 10 times the volume and the business pays one week’s worth of liabilities (25%) as a function of its regular accounts payable management.<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 ABC Inc<\/strong>.<\/span> This simple scaling by 10 of the balance sheet and managing the accounts payable with normal financial management reduces the volatility of the current ratio significantly. In effect, the small business environment allows for greater dispersion of the ratio than in the larger corporate financial structure. The economy of scale dampens the ability to manipulate the current ratio.<\/span><\/p>\n So the lack of economy of scale with small business creates the ability to more easily manipulate the current ratio results. It is the number one drawback to using the current ratio when evaluating small business operations. Another drawback to the current ratio is the increasing of liabilities in a one to one relationship with current assets. Assume the same case as in the small business example above, except now, of the $51,000 of current assets there is little cash. The company uses its line of credit to increase cash by $10,000. Remember a line of credit is a current liability. Now let’s look at the results.<\/span><\/p>\n \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0ABC Inc.<\/strong><\/span> The current ratio decreases by 25%. Think about this for a moment, 25% change in one day is very volatile.<\/span><\/p>\n A third drawback to this ratio is the relationship of the current assets, especially in small business. In more mature operations, cash flow is more reliable and it becomes easier to manage and fund regular operations, so cash dominates current assets. But in small business cash tends toward a much weaker percentage of total current assets. It is used to fund growth and thus there is more demand for its use depleting the cash account. The current ratio uses all the current assets to determine the derivative. A larger company can change the ratio by simply paying down its accounts payable whereas a smaller business can’t demonstrate significant improvement without additional cash. Take a look at this illustration.<\/span><\/p>\n Before Changes<\/strong><\/span> \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0ABC Inc.<\/strong> \u00a0 \u00a0 \u00a0 \u00a0XYZ Inc. Current Liabilities<\/span> After Changes<\/span><\/strong><\/span> \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0ABC Inc.<\/strong>\u00a0 \u00a0 \u00a0 \u00a0XYZ Inc.<\/strong> Current Liabilities<\/span> Although the ratio is acceptable, there is no cash to pay the bills; whereas in larger operations, cash is still available to pay the bills.<\/span><\/p>\n Therefore, if the ratio is easily manipulated or unreliable in small business financial analysis; are there alternative methods to evaluate short-term financial health?<\/span><\/p>\n The primary purpose of the current ratio is understanding the short-term financial health of an operation. It is a risk evaluation tool. Any owner or investor is concerned that the business may become insolvent or worse bankrupt. Other tools are used to evaluate this risk with small businesses. Below are alternative tools (methods); it is best that they are used together and not individually as a barometer of short-term financial health.<\/span><\/p>\n A) \u00a0Net Current Asset Trend<\/strong> – This simple mathematical subtraction formula of current assets minus current liabilities establishes an absolute dollar value of short-term financial position. This value is calculated regularly, daily is best, and a trend line is charted. If this line has a positive slope, then it is a good indicator of continuous improvement. The steeper the slope, the better.<\/span><\/p>\n B) Cash Ratio<\/strong> – A ratio of cash to current liabilities, it is always lower than the current ratio (current ratio includes all current assets). However, it is a good indicator of ability to meet the cash needs of the company.<\/span><\/p>\nBasic Formula – Current Ratio<\/span><\/strong><\/h2>\n
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Current Liabilities<\/span><\/p>\nCurrent Ratio – Calculate the Ratio<\/span><\/strong><\/h2>\n
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Balance Sheet<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0November 30, 2015<\/span>
\n ASSETS<\/span><\/strong><\/span>
\n Current Assets<\/span>
\n\u00a0 \u00a0 \u00a0Cash \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $27,000<\/span>
\n\u00a0 \u00a0 \u00a0Inventory \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 42,000<\/span>
\n\u00a0 \u00a0 \u00a0Accounts Receivable \u00a0 \u00a0 \u00a0 \u00a0 18,000<\/span>
\n\u00a0 \u00a0 \u00a0Prepaid\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,100<\/span><\/span>
\n\u00a0 \u00a0 \u00a0Sub-Total Current Assets\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$89,100<\/span>
\n Fixed Assets \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0107,000<\/span>
\n Other Assets \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a014,000<\/span><\/span>
\n TOTAL ASSETS \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $210,100<\/span><\/strong><\/span><\/p>\n
\n
\n Current Liabilities<\/span>
\n\u00a0 \u00a0 Accounts Payable \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $51,000<\/span>
\n\u00a0 \u00a0 Accrued Payroll \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a06,000<\/span>
\n\u00a0 \u00a0 Accrued Expenses \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a09,300<\/span>
\n\u00a0 \u00a0 Current Portion L\/T Debt \u00a0 \u00a0 3,600<\/span><\/span>
\n\u00a0 \u00a0 Sub-Total Current Liabilities\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $69,900<\/span>
\n Long-Term Debt\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a058,000<\/span><\/span>
\n TOTAL LIABILITIES\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0127,900<\/span><\/strong><\/span>
\n EQUITY<\/span><\/strong><\/span>
\n\u00a0 \u00a0 \u00a0Common Stock \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$20,000<\/span>
\n\u00a0 \u00a0 \u00a0Retained Earnings \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a046,000<\/span>
\n\u00a0 \u00a0 \u00a0Current Earnings \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a016,200<\/span><\/span>
\n\u00a0 \u00a0 \u00a0Sub-Total Equity\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a082,200<\/span><\/span>
\n TOTAL LIABILITIES & EQUITY \u00a0$210,100<\/span><\/strong><\/span><\/p>\n
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Current Liabilities<\/span><\/p>\n
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $69,900<\/span><\/p>\nPurpose of the Current Ratio<\/span><\/strong><\/h2>\n
\n B) It is also a mathematical derivative identifying the number of accounting cycles (one month, quarter or a year) that a business can meet its financial obligations without an infusion of working capital or the profit from the sale of products\/services.<\/span>
\n C) A very common use is as a measurement against a standard for an industry of management’s ability to manage cash flows from operations.<\/span>
\n D) The current ratio acts as an indicator of profit capacity from operations by evaluating the ratio over several cycles. \u00a0An increase indicates profitable operations.<\/span>
\n E) Finally, when used with the other 20 plus business ratios it can help determine the likelihood of success for long-term stock purchases or sales.<\/span><\/p>\nDrawbacks of the Current Ratio in Small Business<\/span><\/strong><\/h2>\n
\n<\/strong><\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0Balance Sheet (Limited Scope – Summary Format)<\/span><\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0December 30 and 31, 2015<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Before 12\/30\/15<\/span> \u00a0 \u00a0 \u00a0 After 12\/31\/15<\/span><\/span>
\n Current Assets \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $51,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $41,000<\/span>
\n Current Liabilities \u00a0 \u00a0 \u00a0 17,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 7,000<\/span>
\n Current Ratio \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a03:1 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a05.85:1<\/span><\/p>\n
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Balance Sheet (Limited Scope – Summary Format)<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0December 30 and 31, 2015<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Before \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 After<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0December 30, 2015<\/span> \u00a0 \u00a0 December 31, 2015<\/span><\/span>
\n Current Assets \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$510,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$467,500<\/span>
\n Current Liabilities \u00a0 \u00a0 \u00a0 \u00a0 \u00a0170,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0127,500<\/span>
\n Current Ratio \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3:1 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a03.66:1<\/span><\/p>\n
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Balance Sheet (Limited Scope – Summary Format)<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0December 30 and 31, 2015<\/span>
\n\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Before \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0After
\n<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a012\/30\/15<\/span> \u00a0 \u00a0 \u00a0 \u00a012\/31\/15<\/span><\/span><\/span>
\n Current Assets \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $51,000 \u00a0 \u00a0 \u00a0 \u00a0 $61,000<\/span>
\n Current Liabilities \u00a0 \u00a0 \u00a0 17,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 27,000<\/span>
\n Current Ratio \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 3:1 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2.26:1<\/span><\/p>\n
\n Balance Sheets (Limited Scope)<\/span>
\n December 30, 2015<\/span><\/p>\n
\n<\/strong>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0(Larger Operation)<\/span>
\n Current Assets<\/span>
\n\u00a0 \u00a0 \u00a0Cash \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $4,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$300,000<\/span>
\n\u00a0 \u00a0 \u00a0A\/R \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0 47,000<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0210,000<\/span><\/span>
\n Total Current Assets \u00a0 \u00a0 \u00a0 \u00a0 $51,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $510,000<\/span><\/p>\n
\n\u00a0 \u00a0 \u00a0Accounts Payable \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$15,000 \u00a0 \u00a0 \u00a0 \u00a0 $150,000<\/span>
\n\u00a0 \u00a0 \u00a0Accrued Expenses \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,000<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a020,000<\/span><\/span>
\n Total Current Liabilities \u00a0 \u00a0 $17,000 \u00a0 \u00a0 \u00a0 \u00a0 $170,000<\/span>
\n Current Ratio \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a03:1 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a03:1<\/span><\/p>\n
\n Balance Sheets (Limited Scope)<\/span>
\n December 31, 2015<\/span><\/p>\n
\n(Larger Operation)<\/span>
\n Current Assets<\/span>
\n\u00a0 \u00a0 Cash\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $ \u00a0 -0- \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$150,000<\/span>
\n\u00a0 \u00a0 A\/R\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 47,000<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0\u00a0 210,000<\/span><\/span>
\n Total Current Assets \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$47,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$360,000<\/span><\/p>\n
\n\u00a0 \u00a0 Accounts Payable\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$11,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 $ \u00a0 \u00a0 -0-<\/span>
\n\u00a0 \u00a0 Accrued Expenses\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 2,000<\/span> \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a020,000<\/span><\/span>
\n Total Current Liabilities \u00a0 \u00a0 $13,000 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0$20,000<\/span>
\n Current Ratio \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a03.61:1 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 18:1<\/span><\/p>\nAlternative Methods to the Current Ratio<\/span><\/strong><\/h2>\n