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Thorneloe presenting Anglican national indigenous bishop with honourary doctorate analysis for a small business essays Ratio analysis is a key tool to understand the potential and current profitability of any small business. There are different types of financial ratios, all used for different purposes. In general, they tend to fall into three categories. The first category, that of liquidity ratios are the standard measures of any business' Size health, and include the business' standard and quick ratios. The standard current ratio for a healthy business is two, meaning the business has twice as many assets as liabilities, as tracked monthly or quarterly. The quick or acid test liquidity ratio also measures a business' liquidity but excludes inventories when counting the business' assets and thus is considered a more stringent method of analysis. ("Financial Formulas for Small Businesses," 2003) Efficiency ratios comprise a small business' cash flow, inventory efficiency, and how quickly its products or services sell. For instance, company's receivables turnover ratio indicates how quickly customers are paying a business and its payable turnover ratio indicates how quickly a business pays the bills. Another efficiency ratio, the average collections period, indicates how quickly customers are paying bills by revealing the average length of the collection period. Ideally, the average collections period will be less than the credit term agreed upon plus an additional allowance of fifteen days. ("Financial Formulas for Small Businesses," 2003) Profitability ratios such as returns on sales, which compares after tax profit to sales, determines if a business is maximizing its bottom line. It Review most common to analyze profitability ratios in light of the performance of industry peers. Other examples of profitability ratios are those of the ratios of inventory to net working capital ratio. This ells how much of a The Best Leaders See Things That Others Dont. Art Can Help. funds are Analysis, up in inventory. It is usually preferable to run a business with as.