Liabilities current ratio

This is usually defined as the ratio that liquid assets (debtors - - cash) bear to current liabilities. The ratio is a measure of the relation of short-term obligations to the funds likely to be available to meet them. 

Liquidity ratios are a measure of a company s ability to pay its shortterm debts. Current ratio is obtained by dividing the current assets by the current liabilities. Depending on the economic climate, this ratio is 1.5 to 2.0 for the chemical process industries, but some companies operate closer to 1.0. The quick ratio is another measure of liquidity and is cash plus marketable securities divided by the current liabilities and is slightly greater than 1.0. 

Current ratio Current assets/current liabilities 1.5-2.0... 

The current ratio is the ratio of current assets to current liabilities. 

Current ratio = current assets -f- current liabilities... 

The ratio of total current assets to total current liabilities is called the current ratio. The ratio of immediately available cash (i.e., cash plus U.S. Government and other marketable securities) to total current liabilities is known as the cash ratio. The current and cash ratios are valuable for determining the ability to meet the financial obligations, and these ratios are examined... 

Table 9.11 calculates the current ratio for the Blue and Gold companies. Although both companies have 100,000 more of current assets than current liabilities (working capital), the current ratio varies substantially. The Blue company s management has twice as many assets to pay for the current... 

Cash, A/R, and S/T securities Current liabilities Quick ratio... 

Current-average method for materials accounting, 148 Current liabilities, 140-141 Current ratio, 140-142 Cutting for equipment fabrication, 447 Cyclic operations, optimum conditions for, 353-361... 

The current ratio is defined as the current assets divided by the current liabilities. It is a measure of the company s overall ability to meet obligations from current assets. Today a comfortable level of between 1.5 and 2 is considered adequate. (Note Numbers presented in this section are typical as of 1999 but will vary depending on the company s style of management.)... 

The current ratio is defined as current assets divided by current liabilities. It is an indication of the ability of a company to meet short-term debt obligations. The higher the current ratio, the more liquid the company is. However, too high a ratio may indicate that the company is not putting its cash or equivalent cash to good use. A reasonable ratio is two, but it is better to compare current ratios of companies in a similar business. From Table 16.3, the current assets ratio of U.S. Chemicals is 4,630/4,153 = 1.11, which is alow value. At the end of the year 2000, Monsanto Company had a much better current ratio of 1.80. 

The acid-test ratio, also called the quick ratio, is a modification of the current ratio with the aim of obtaining a better measure of the liquidity of a company. In place of current assets, only assets readily convertible to cash, called quick assets, are used. Thus, it is defined as the ratio of current assets minus inventory to current liabilities. Marketable securities, accounts receivable, and deferred income tax assets are considered to be part of quick assets. From Table 16.3, the quick assets for U.S. Chemicals, in millions of dollars, is 4,630 - 1,420 -312 = 2,898. This gives an acid-test ratio of 2,898/4,153 = 0.70, which is not a desirable ratio, since it is less than one. At the end of the year 2000, Monsanto Company had a much better acid-test ratio of 1.35. 

Current ratio is a liquidity measure computed by dividing the current assets by current liabilities it measures short-term solvency or the ability of a firm to meet current liabilities. Because current assets include inventory that may or may not be convertible into immediate cash, the quick ratio is frequently used in addition to the current ratio. The quick ratio is calculated by dividing cash plus marketable securities and discounted receivables by current liabilities. Satisfactory values for these two ratios are 1.2-2.0 for current ratio and 1.0-1.2 for quick ratio. 

Current ratio = Current assets/Current liabilities = 22,203/ 17,839 = 1.24 times... 

What does the ratio indicate PepsiCo has 1.24 times as many current assets as it has current liabilities. For every dollar of current liabilities, PepsiCo has 1.24 of current assets indicating that PepsiCo could pay their debts if the debts were due today. What this particular liquidity ratio does not specify is the mix of current assets. Using just the current ratio, it is difficult to know if their current assets are made up mostly of cash or tied up in inventory or receivables. The PepsiCo example demonstrates a company that can more than meet its shortterm obligations, which is not the case for every company. A current ratio of 1.0 indicates that the company can exactly meet its short-term obligations, whereas a ratio less than 1.0 means that a company cannot meet those obligations. 

Liquidity can be expressed as the ratio of liquid assets (cash plus debtors) to current liabilities. Such assets are also known as Quick assets , i.e. capable of swift realization. 

Cash ratio Current assets - inventory/current liabilities 1.0-1.5... 

The standard quick ratio that any organization strives to obtain is at least 1.0. Simply put, having a quick ratio of greater than 1.0 means that the organization has more quick assets than it has current liabilities. On the other hand, having a quick ratio of less than 1.0 means that the cash that organization has on hand would not be sufficient to pay all its current liabilities, particularly its short-term bills and other obligations. 

The cash or quick ratio expresses the ability of a company to cover from its assets an emergency. It is the cash plus marketable securities divided by the current liabilities. Atypical figure is greater than 1.0. 

Criterion 2. Lenders ask the same questions as investors. In addition, lenders are particularly concerned about the company s ability to repay its debt on time—with interest. Lenders are most interested in short-term cash positions, or liquidity, as measured by the ratio of current assets to current liabilities. They are also concerned with the ratio of cash flow (net income after taxes plus depreciation) to interest on debts. 

Transactions that change the character of the net working capital but do not affect its value occur in a company. For example, a cash payment of 10,000 for accounts payable reduces both the current asset of cash by 10,000 and the current liability of accounts payable by 10,000, leaving the net working capital unchanged. However, this transaction affects both the current and the quick ratios. 

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