Analyzing Liabilities for an Organization’s Sustainability Index

Analyzing Liabilities for Decision Making
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Analyzing Liabilities for Decision Making
An organization’s sustainability index is assessed by its ability to meet its liability obligations. This potential is measured using three liquidity indicators; Current Ratio (Working Capital Ratio), Quick Ratio (Acid Test Ratio) and Operating Cash Flow Ratio. Current liabilities are key in determining all the three ratios. Lower current liability values will result in higher ratios, while higher current liability values will result in lower ratios. Therefore, high liability balances will portray low liquidity. Each of these balances have specific advantages and disadvantages.
One of the pros of such high balances is that the company has a high short-term debt. The high short-term debt means that the company is able to establish and build business credit. This ensures the company never runs out of credit through bank overdrafts and account payables.
Another advantage of the high bala...