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Importance of current assets & liabilities

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Pradeep

Student

60 Points Posted on 12 March 2012

dear experts & friends,

i am hereby want to know the importance of current assests & liabilities like debtors & creditors, loans & advances, prepaid expenses etc. & impact of the change in the current liabilities & current assets & their impact on cash flow.

kindly reply as early as possible.

kindly do the needful

Replies (1)

Giridhar S Karandikar

Team Lead

5675 Points Posted on 15 March 2012

The Current Ratio which is defined as Current Assets/Current liabilities, shows how sound the busines is being carried on by the organization. A current ratio of 2 is the norm of the industry. However this may differ depending upon the nature of the busines the organization is carrying on. A current ration of2 means that the current assets should be twice your current liabilites. if the ratio is less than two then the liquidity of the comapny is not well.