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The Complete Idiot's Guide to MBA Basics, 3rd Edition by Tom Gorman

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Liquidity Ratios

The following formulas (aside from working capital, which isn’t a ratio) are called liquidity ratios. They measure a company’s capability to meet its short-term obligations and to convert receivables and inventory into cash. The liquidity ratios we cover are current ratio, quick ratio, A/R turnover, collection period, inventory turnover, and days’ sales on hand. But first, let’s examine working capital.

Working Capital

Working capital measures a company’s capability to pay its current obligations. The formula for working capital is:
Working capital = Current assets – Current liabilities
Current assets and current liabilities are listed on the balance sheet.
MBA LINGO
Working capital measures a company’s capability to ...

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