Finding the Current Ratio

One of the most commonly used debt measurement tools is the current ratio, which measures the assets a company plans to use over the next 12 months with the debts it must pay during that same period. This ratio lets you know whether the company will be able to pay any bills due over the next 12 months with assets it has on hand. You find the current ratio by using two key numbers:

✓ Current assets: These are cash or other assets (such as accounts receivable, inventory, and marketable securities) the company will likely convert to cash during the next 12-month period.

✓ Current liabilities: These are debts that the company must pay in the next 12-month period, including accounts payable, short-term notes, accrued taxes, and other payments.

I talk more about current assets and current liabilities in Chapter 6.

0 0

Post a comment