An assessment of an individual's or business's financial status can be made by comparing the amount of debt (liabilities) to total assets. If your debt is greater than your assets you may be experiencing some financial stress.
Insolvent
When your debts exceed your assets, you are considered insolvent. There is probably a lot of financial uncertainty surrounding your credit and debt. You may not be able to meet your monthly obligations.
Debt Management
When your debt far exceeds your assets, you may need to seek help from a consumer credit counseling program. The agency can counsel you on budgeting and debt management and might enroll you in a debt management program.
Warning
If you cannot resolve debt-to-asset problems, you may have to file for bankruptcy. This should be your last resort.
Significance
A company can determine its financial well-being by comparing current assets to current liabilities using the current ratio. This ratio determines the liquidity of a company. It measures how many assets are available to pay debts that will need to be paid during the year. .
Considerations
A particular industry may determine what's acceptable for the current ratio. Many companies keep their current ratio between 1 and 2. If a company has current assets of $20 million and current liabilities of $10million, the current ratio is 2.
0 comments:
Post a Comment