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Used as a liquidity measurement, showing how well a company can pay all its debt with all its assets.[sc:kit02 ]
Current Assets to Total Debt Formula
Explanation of Current Assets to Total Debt
The Current Assets to Total Debt ratio measures the company’s ability to cover its total debt with its Total Current Assets. This ratio is also used to estimate the liquidity of the company by showing the company can pay its creditors with its current assets if the company’s assets ever had to be liquidated.
Importance of Current Assets to Total Debt
An increasing Current Assets to Total Debt ratio is generally a positive sign, showing the company has a better ability to satisfy its debt obligations using its Total Current Assets. A ratio of 1.0 or greater indicates the company would just meet its debt obligations, when in reality the company would need a ratio result that is higher than this, as some of the current assets could not easily be converted into cash.