Farm liquidity - your current ratio

Farm liquidity - your current ratio

The current ratio measures the extent to which current assets, if liquidated, would pay off all current liabilities. The higher the ratio, the greater the liquidity and as we learned in last month's post, cash is king.

The measures of financial liquidity quantify the ability of your farm to meet the financial obligations as they come due as well as to generate cash to pay family living expenses, income taxes, and make debt payments on time. The typical measures of liquidity under review by your FBFM field staff or lender are: 1) the current ratio, 2) working capital, and 3) the working capital/gross revenue ratio. This post will review the current ratio. The current ratio measures the extent to which current assets, if liquidated, would pay off all current liabilities. The higher the ratio, the greater the liquidity and as we learned in last month's post, cash is king.

Continue reading at: http://www.farmdocdaily.illinois.edu/2012/08/farm_liquidity_your_current_ra.html.

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