Ratios gauge a company’s short-term liquidity

Q: What are “current” and “quick” ratios? — O.P., Bloomington, Indiana

A: Both are measures of a company’s short-term liquidity. To calculate a company’s current ratio, go to its balance sheet and divide current assets by current liabilities. The result shows whether the company has sufficient resources — such as cash and receivables — to pay its bills over the coming year.

The quick ratio (sometimes called the acid-test ratio) is similar, but it’s a bit more meaningful, as it subtracts inventory and prepayments from current assets before dividing by current liabilities.

Quick ratios and current ratios of 1.0 are good. Consider a high ratio a red flag, as it can reflect assets sitting around unproductively. These ratios vary by industry, so compare a company only with its peers — or with itself over time — to spot trends.

Fool’s School: Financially savvy teens

Give your kids love and attention, but help them grow into smart money managers, too. That can set them up to be financially independent and secure in adulthood. Here are recommendations:

• Set a good example. Let them see you paying bills on time, using coupons and seeking discounts, setting financial goals and working to reach your goals. Share your successes and lessons learned, such as the danger of credit card debt and the value of living below your means.

• Teach them how to budget their money. If they get allowances or earn money, help them prioritize their spending and decide how to use their cash. Have your teens contribute toward major expenses such as their car insurance.

• Show your teens how to comparison shop and save money. Introduce them to savings apps such as Shopular, Yroo, Shopsavvy, Krazy Coupon Lady (KCL), Retailmenot, Buyvia and Flipp. Discuss ads and commercials they see, pointing out how marketers are trying to persuade them to buy.

• Consider part-time jobs for teens. A job will offer some spending money and can teach them about the value of time and hard work. Something they might want to buy if their parents were paying for it might seem less necessary when they have to work many hours to earn it.

• Open Roth IRAS for your teens once they have earned income (contributions can come only from earned income).

• Avoid getting credit cards for teens, at least until they’ve demonstrated a high level of responsibility. Paying with plastic can seem less real than paying with hard-earned cash, encouraging some to live beyond their means and rack up debt.

Name that company

I trace my roots to 1963, when a single mother used $5,000 to launch a cosmetics company in Dallas. It was immediately successful and generated nearly $1 million in sales in its second year. My original store employed fewer than 10 people, but I now have 3.5 million people, mostly of a particular gender, selling my wares in more than 35 global markets. I have more than 1,500 patents. I rake in about $4 billion annually and like to reward my top sellers with a distinctive set of wheels. Who am I?

Last week’s answer

I trace my roots to the 1930s, when the owner of a service station and motel in the South began cooking for travelers. Today, based in Kentucky, I encompass more than 48,000 restaurants in more than 145 countries and territories. My three main brands are KFC, Pizza Hut and Taco Bell. My name and ticker symbol are what customers might think when they eat my fare. I debuted in China in 1987 and spun off my China division in 2016; it now boasts more than 8,600 locations. Once owned by Pepsico, I was spun off in 1997. Who am I? (Answer: Yum! Brands)

Got a question for the Fool? Send it in the care of this newspaper.