Why some assets count more than others
Cash sits at the top of the scale. Marketable securities, accounts receivable, inventory and prepaid expenses rank lower because each has to be sold, collected or used up before it turns into cash. Equipment and buildings rank lowest: converting them can take months or years, and the business usually needs them to operate.
A business can therefore be rich on its balance sheet and still short of cash. BDC notes there is no single ideal figure, and every business has its own needs, so liquidity is best tracked over time.
How liquidity is measured
Common measures are liquidity ratios, which compare assets with liabilities. The current ratio divides current assets by current liabilities. The quick ratio, also called the acid-test ratio, compares the most liquid assets to current liabilities. The cash ratio divides cash alone by current liabilities and is the most conservative.
BDC suggests comparing your ratios with others in your industry, because a capital-intensive business will naturally look different from a retailer. Working capital, covered separately, is the dollar difference between current assets and current liabilities.
An illustrative example
Suppose a business holds $5,000 in cash, $55,000 in receivables and $70,000 in current liabilities. The cash ratio is about 0.07 and the quick ratio about 0.86. The business looks adequate on paper, but it depends on collecting receivables to pay bills. If two large customers pay 30 days late, a shortfall can appear even though nothing is wrong with sales. The figures are illustrative only.
Buying a truck with cash lowers liquidity at once. Buying it with a loan adds a debt, and only the portion due within a year counts among current liabilities.
What to discuss with your accountant
Ask which ratios suit your type of business and how often to review them; BDC mentions monthly, quarterly or semi-annual checks. Ask how overdue receivables and slow-moving inventory should be treated when judging your position.
If you are seeking credit, a lender may ask about your short-term position, so bring recent balance sheets and an aged receivables list. Pair the ratios with a cash flow forecast, since the ratios describe a single date and not when money moves.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.