What does the current asset ratio measure?

The current asset ratio, also known as the current ratio, measures the comparison of current assets with current liabilities. This financial metric is crucial for assessing a company's short-term financial health and liquidity. It indicates the organization's ability to meet its short-term obligations as they come due.

By analyzing current assets, which typically include cash, accounts receivable, and inventory, against current liabilities, such as accounts payable and short-term debt, stakeholders can ascertain if there are sufficient resources available to cover immediate financial commitments. A ratio greater than one suggests that the company has more current assets than current liabilities, which is generally seen as a positive sign of financial stability.

This measure provides valuable insights for funeral service businesses and others, as it reflects their capability to handle operational costs and unexpected expenses without necessitating additional borrowing or liquidating long-term assets.