My favorite CFO is the first one I ever hired for a favorite client more than a decade ago. He’s still going strong as he enters the early twilight years of his financial career.
While I think the world of this CFO, I once let him have it with some choice Midwestern slang, not repeatable to your loved ones, when he shared some liquidity reporting with me, which emphasized his firm’s current ratio.
While I was not happy with his analysis, I realized he was merely copying what he had been taught in school. So his financial shortcoming led to a great teachable and coachable moment on evaluating the financial health of any organization.
In this discussion, I’ll explain the limitations of the current ratio and why you should never use it when assessing your business’s financial health. There’s a far, far better way to do this.
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