in market conditions, the company must always be able to promptly pay off their debt (ie have the ability to pay), and short-term liabilities (liquidity have).The current liquidity ratio shows the extent to which these obligations are met.
company is considered insolvent if the amount of its current assets over the long-term and short-term liabilities.The organization is liquid with the proviso that the sum of the funds more than short-term debt.
Assessment of the degree of liquidity and solvency of an economic entity includes a comparison of the balance, which are divided into different groups of assets and liabilities.To calculate the current ratio, you first need to "turn to the sources."
Current ratio shows the extent to which the company can pay the liabilities from the assets.By the degree of liquidity of the assets of an economic entity can be divided into:
A1 - the most liquid (short-term investments, cash value of the shares redeemed from shareholders);
A2 - assets that can be implemented quickly (accounts receivable in the short term, as well as other current assets section of the balance sheet 2);
A3 - assets that have low liquidity (value-added tax on acquired values, debt capital contributions, investments in the long term);
A4 - almost liquid (accounts receivable in the long term, as well as funds from one section of the balance (in addition to the articles, which are included in the group A3)).
Information concerning liability:
P1 - the most urgent obligations (debt payment to income, accounts payable and other liabilities in the short term);
P2 - short-term liabilities (loans in the short term);
P3 - long-term liabilities (loans in the long run);
P4 - permanent liabilities (3 section, future expenses and deferred income).
balance is considered to be completely liquid if 3 of the first group of assets over liabilities of the first 3 groups, respectively, and A4 & lt; P4.
current liquidity ratio shows that if the company is able to cover its liabilities using current assets.It is of great interest to investors - external actors.
Current assets of the enterprise with respect to short-term debts - is the current ratio.The ratio of this index varies from 1.50 to 2.50.It depends on the industry's economic analysis.
The higher the value, the greater the economic entity has the ability to pay.A critical component is less than 1 - which means that the company is unable to pay obligations on the condition that they must immediately pay off.
Current ratio shows whether the organization is able to pay its values into cash without loss, as well as the likelihood of timely coverage of current liabilities of the enterprise assets.