Question

Can someone please explain what current asset to total asset ratio means? And what it the advantage if one company has a higher ratio than the other one?

Answer 1

Ans- Current Assets- Current assets are those assets which can be converted in to cash into the short term of business life.

Total Assets- Total assets have long term assets include current assets .Total assets= Current Assets+ Fixed assets.

Current Asset to Total Asset Ratio:-

Current asset to total asset ratio is calculated to find out that how much portion of total assets is occupied by the current assets. It indicate the extent of total funds invested for the purpose of working capital because working capital is essential for business's day to day operations. It also shows the importance of current assets of the firm.

Advantage if one company has a higher ratio than the other one:-

If one company has a higher Current Assets to Total Assets Ratio, it means that current assets of this company are essentially involved in forming working capital and also take an active part in increasing liquidity. As current assets are the part of total assets which is used for all business day to day operations and expenses. It shows the liquidity power of the business. If one company can pays all its liabilities and expenses in short time ,then it will increase the profit of the company.