Ratio analysis is a key tool to understand the potential and current
             profitability of any small business. There are different types of
             financial ratios, all used for different purposes. In general, they tend to
             fall into three categories. The first category, that of liquidity ratios
             are the standard measures of any business' financial health, and include
             the business' standard and quick ratios. The standard current ratio for a
             healthy business is two, meaning the business has twice as many assets as
             liabilities, as tracked monthly or quarterly. The quick or acid test
             liquidity ratio also measures a business' liquidity but excludes
             inventories when counting the business' assets and thus is considered a
             more stringent method of analysis. ("Financial Formulas for Small
             Efficiency ratios comprise a small business' cash flow, inventory
             efficiency, and how quickly its products or services sell. For instance,
             company's receivables turnover ratio indicates how quickly customers are
             paying a business and its payable turnover ratio indicates how quickly a
             business pays the bills. Another efficiency ratio, the average collections
             period, indicates how quickly customers are paying bills by revealing the
             average length of the collection period. Ideally, the average collections
             period will be less than the credit term agreed upon plus an additional
             allowance of fifteen days. ("Financial Formulas for Small Businesses,"
             Profitability ratios such as returns on sales, which compares after
             tax profit to sales, determines if a business is maximizing its bottom
             line. It is most common to analyze profitability ratios in light of the
             performance of industry peers. Other examples of profitability ratios are
             those of the ratios of inventory to net working capital ratio. This ells
             how much of a company's funds are tied up in inventory. It is usually
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