Subsection of: Financial Ratios, Calculators and Impressing Investors
Provided by the International Finance Corporation
This ratio measures the ability of the business to pay off all short-term debts and borrowings using the value of current assets (stocks or inventories, cash, and short term loans). It is reasonable to assume that a healthy business will usually be in a position to meet its short-term debts and borrowings comfortably.
A ratio of greater than 1.25:1 would be acceptable, although a figure of at least 1.50:1 would be preferable to provide a safety margin especially if the value of stocks is high (as these might be a little more difficult to turn into cash quickly).
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