Liquid

In a balance sheet, there are sections labeled as current assets and current liabilities. Anything that is achievable in a period of one year is termed as current. Readily available cash or cash equivalents that can be converted into cash within a short period, inventory, account receivables are included in the current asset section. While, interest payable, account payable, and interest on current portion of the long-term loans are included in the current liabilities section.
If anything is left after subtraction of current liabilities from current assets, that leftover is called Working Capital or net current asset. These numbers can also be rearranged in the following manner:
Current Assets/Current Liabilities = Current Ratio.

Both Working Capital and Current Ratios are used to examine if the company has source of cash to meet its day-to-day expenses, and if it has what its comfort levels are. The recommended levels of comfort in the cash position vary from industry to industry. An industry with quick inventory turnover can afford to work with lower levels of cash comfort than a company in an industry that takes long time to convert raw materials into product. Two things that require closer attention in the current assets section are account receivables and inventory. Sizes of these two items over a period of time, say five years, should be looked at. Increasing account receivables over a number of years will indicate that company has a problem in collecting its sale revenues. And increasing size of inventory without a concomitant increase in sale will indicate that the company has a problem in selling its product(s). If such problems do exist, then are they chronic or temporary? That can be judged using data from the past years. Inclusion of unsellable inventory can distort the actual levels of comfort. Therefore, a more stringent quantity called Quick Ratio or Acid Test is developed simply by excluding inventory from current assets. Boy, this ratio is really acidic! It burns! It is sulfuric or nitric or whatever else that burns!