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How to Improve Current Asset RatioInvestors, managers, business owners and other stakeholders use financial ratios to measure the performance of companies. The current asset ratio, or working capital ratio, is one commonly used tool that measures the liquidity and financial position of a company. It is calculated by adding up all of the company's current assets and dividing them by the total amount of the company's current liabilities. This ratio is used to determine how well a company is able to pay its obligations
Understand what short-term means. Short-term assets refer to assets that are very liquid. Assets are things a company owns that have value. If an asset is short-term, it means the company can easily turn the asset to cash in one year or less. Short-term assets include cash, supplies and accounts receivable. Accounts receivable is an account that tracks amounts owed to the company. Short-term liabilities refer to amounts the company owes to other businesses or individuals that are due within one year or less.
Calculate the current asset ratio. Before you can try improving this ratio, you must know what your company's current asset ratio is. Add up all current assets and divide this amount by the total of all current liabilities. A ratio of two or higher is considered good. Companies with ratios of two or higher are often more likely to have fewer issues paying their debts.
Pay off some of the current liabilities. For example, if your company has $50,000 in current assets, with $30,000 in cash, and $35,000 in current liabilities, the current ratio is 1.4. To improve this, consider using some of the cash to pay off the debts. If you use $20,000 of the cash to pay off debts, the ratio changes to $30,000 in current assets divided by $15,000 in current liabilities, resulting in a current ratio of 2.
Pay off as much debt as possible. If you want to improve the current ratio by using all your cash to pay off debt in the example, the current asset ratio would improve to 4. This is calculated by using the full $30,000 in cash to pay off the debt, leaving only $5,000 in debt. This leaves $20,000 in current assets divided by $5,000 in debt, causing the current ratio to significantly improve.
Take out long-term debt. Another way to improve the current ratio is to take a long-term loan for all of the current debt. By doing this, the current liabilities are completed eliminated which results in a terrific current asset ratio. The debt; however, is still there, but will be paid over a longer time span.
Read more: How to Improve Current Asset Ratio | eHow.com http://www.ehow.com/how_8396521_improve-current-asset-ratio.html#ixzz1J2uAwejw
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What current ratio indicates?
Current Ratio is when you take your current assets divided by your current liabilities. This is one of the best known and most widely used ratios. Because current assets and liabilities are, in principle, converted to cash over the following 12 months, the current ratio is a measure of short-term liquidity. The unit of measurement is either dollars or times. For example, you could say ABC Corp has $1.50 in current assets for every $1 in current liabilities, or you could say that ABC Corp has its current liabilities covered 1.5 times over. To a creditor, the higher the ratio the better. To the firm, a high current ratio indicates liquidity, but it also may indicate and inefficient use of cash and other short-term assets. Absent some extraordinary circumstances, we would expect to see a current ratio of at least 1, because a ratio of less than 1 would imply a negative working capital number, which which over time could mean insolvency. Generally, a number closer to the 2 range would be most desirable for most industries.
What would happen to external fund requirements if a company reduces its dividend payout ratio?
if they reduced the dividend ratio i guess the companys external fund will be less.. because they will have more fund on hand so they wont be in need of that much of loan or they might not of need of loan at all
A co current assets are 96500 and current liabilities are 58600 The company wants a loan of 25000 for a 6 month period What is the current ratio after the loan?
current liabilities at present 58600, when loan is taken, the amount will become 58600+25000=83600 current ratio would be 96500/83600 = 1.1543 Aruna Joshi
What is the ideal Current Ratio of a firm?
Liquidity and debt-equity ratios are widely used financial ratios. Liquidity ratio, also called the 'short-term solvency' ratio shows the adequacy or otherwise of working capital for a company's day-to-day operations. It is calculated as current assets/current liabilities. An ideal current ratio would be 2, indicating that even if the current assets are to be reduced by half, the creditors will be able to able to get their money in full. But a lot depends on the composition of current assets. If a substantial portion of the current assets is made of slow-moving/obsolete stocks or if the debtors comprise ageing debts, the company may not be able to pay the creditors even if the current ratio is higher than 2.
A firm wants to strengthen its financial position what actions would increase its current ratio?
A firm wants to strengthen its financial position. Which of the following actions would INCREASE its current ratio? A. Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. B. Use cash to repurchase some of the company's own stock. C. Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year. D. Issue new stock, then use some of the proceeds to purchase additional inventory and hold the remainder as cash. E. Use cash to increase inventory holdings. Best answer is available at www onlinesolutionproviders com
If the Fed were to impose a slight increase in the required reserves ratio there would be .?
If the Fed were to impose a slight increase in the required reserves ratio, there would be _____.
What ratio ct to use for a 250 to 5 rated kwh meter?
The ratio would be a 50:1 current transformer.
What would be the effect of increasing the voltage of the battery?
Ohm's Law states that Voltage = Resistance (Ohms) * Current (Ampere). So when you increase voltage, you increase current.
How would you connect several resistances if you wish to increase the current?
Connect it in Parallel.
To construct a battery with a current of 6 amps you would connect six 1 amps cells?
You would connect them in parallel to increase the amerage. If you connect them in series it would increase the voltage. Connected in series-parallel would increase both voltage and amerage.
The nuclide Sn is unstable what decay types would Sn be expected to undergo?
Beta decay to increase the ratio of protons to neutrons
What is mean by ratio?
Ratio analysis is a tool used by management and fundamental investors to determine a company's general position in an industry or sector as it compares to their peers. An example would be the current ratio, which equals the current assets of a company divided by the current liabilities of which the firm is obligated. The current ratio gives investors and management a quick look as to how liquid a firm is. A large proportion of current assets to liabilities indicates a firm will have little trouble meeting its short term obligations regardless of the economic cycle. The analysis may extend to industry peers to compare companies on an apples to apples basis.
How can one go about increasing their current account overdraft?
If someone needs to increase the current amount of overdraft on a bank account, one would have to contact the bank. There are papers that have to be signed to increase any limits on a bank account.
What would happen if the U.S. Federal Reserve Bank were to increase the legal reserve ratio?
You would expect higer interest rates, a contracted GDP and depreciation of the dollar
Why does the current immediately increase in current after reaching a certain voltage rather than a gradual current increase?
It depends on the nature of the circuit. In a purely-resistive circuit, the current would rise immediately because resistance merely limits its value, it doesn't oppose any change in current. But in a resistive-inductive circuit, for example, the inductive component opposes any change in current, so the current will rise more gradually.
If breaker CT ratio 8001 when current of any phase crossed 800 ampere what would happen?
'http://wiki.answers.com/Q/If_breaker_CT_ratio_8001_when_current_of_any_phase_crossed_800_ampere_what_would_happen'
Which mode of transmission would result in less energy loss high current and low voltage or low current and high voltage Explain your reason?
low current high voltage power dissipation in power line = I2R the resistance of the power line is hard to reduce, especially when it is a long transmission line. but reducing the current through the line reduces losses as the square, a dramatic savings. reducing voltage would have no effect and would dramatically increase losses due to increase in current to try to deliver same power.
