Ratios are another amazing way to notice variances in assets, liabilities, income, and expenses. There are tons of different ratios we could look at but let's take a couple and examine them for Simply Yoga. Take a look at their balance sheet.

Current Assets:Cash9550Accounts Receivable900Prepaid Expenses1100Total Current Assets11550Property and Equipment:Yoga Props (less accum depr)1500Total property and Equip.1500Total Assets13050Current Liabilities:Accounts Payable710Payroll Taes Payable672Payroll Taxes Payable1382Total Current LiabilitiesLong Term LiabilitiesLoan Payable6500Stockholder's EquityCommon Stock1000Retained Earnings4186Total Equity5168Total Liabilities13050

Let's talk first about the working capital ratio. The formula is:

Working capital= current assetscurrent liabilities

$10,168=$11,550$1382

So, this shows that Simply Yoga has plenty of funds to pay current liabilities, which is a good thing!But, it also shows that they are holding more funds in a very liquid account, which may be better used to pay off any higher interest debt, such as their loan payable. This is an area for review, right?

The current ratio is another way to look at the ability of a company to cover short term debt.

Current Ratio = Current assets/Current Liabilities

8.36=$11,550/$1,382

What this tells us is that Simply Yoga has enough current assets to cover their current liabilities 8.36 times.Again, this is a good thing, unless they are paying a crazy amount of interest somewhere else. Might that cash be better used to pay off that loan they have sitting on the books? What are your personal thoughts and why?