Determine the term - Working capital and current ratio
Determining these ratios would help a business determine if will have enough capital to operate and can meet their debts.
Working Capital is the amount of current assets minus amount of current liabilities. This must be computed at the end of each period.
The larger the working capital, the better able the business is to pay its debts.
Working capital = current assets – current liabilities
Current Ratio current assets to current liabilities. A current ratio of 2:1 is usually considered acceptable.
Current ratio = current assets/current liabilities