Parameters-4

Based on your experience with your business and its operations, you may be able to set some parameters or guidelines to use in analyzing the percentages and determining where actions need to be taken to make changes or modifications.  The following are some examples:

1. Current assets (cash and cash equivalents, realizable assets, and inventory) should be greater than, and if possible double the amount of short-term liabilities.
2. Realizable assets plus cash and cash equivalents should be approximately equal to short-term liabilities.
3. Owner’s equity should amount to 40% or 50% of total liabilities and owner’s equity.

You may also use benchmarking to compare the status of your business, in terms of relative proportions of different groups of assets and liabilities, with industry standards, or other comparable operations.