current liabilities divided by current assets

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    salman2222
    Participant

    plz guide me that what does this ratio show as ?
    keep it mind im not asking u guys about the current ratio.
    For futher infro ref APX co Dec09 kaplan kit


    Profile photo of golamrahim
    golamrahim
    Participant

    I think this ratio tells us how much of the company’s current assets are financed by short term finance (payables and/ overdrafts).


    Profile photo of golamrahim
    golamrahim
    Participant

    If too much of the current assets are financed by short term sources, the company is operating an aggressive working capital policy.

    Current assets should be divided into fluctuating current assets and permanent current assets. Permanent should be financed by long term sources and fluctuating by short term. This is a matching policy.

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