How to calculate coverage ratio
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When analyzing liquidity, which is understood as the ability of an enterprise to timely pay for its short-term obligations at the expense of quickly-selling assets, a number of factors are calculated. Among them, the current ratio or coverage ratio.
Instruction manual
1
The coverage ratio characterizes the company's ability to timely repay current liabilities through the sale of current assets. This is the most common indicator characterizing the liquidity of the organization. The higher its value, the more solvent the enterprise is.
2
This ratio shows how many rubles of the company's current assets are accounted for by the ruble of short-term liabilities. In other words, it allows you to determine how much of the current obligations the company can repay at the expense of current assets. Therefore, theoretically, an organization in which the level of current assets exceeds the level of short-term liabilities can be considered as successfully functioning.
3
The calculation of the coverage ratio is quite simple. It is defined as the ratio of current assets to the current liabilities of the company. At the same time, assets are understood as cash at the cash desk of the enterprise and on bank accounts, accounts receivable with a maturity of less than 12 months, the value of inventory, other current assets, for example, short-term financial investments. But it should be remembered that not all assets indicated in the balance sheet are current. Some trade balances or past due receivables have zero liquidity. Current liabilities are understood as loans with the nearest maturity, liabilities to employees of the organization, the budget, extra-budgetary funds, etc.
4
The value of the coverage coefficient, as a rule, varies in different industries. Its normative value is 2. A coefficient below the established level is considered critical. The increase in this indicator in dynamics is considered as a positive aspect and shows that the risk associated with the difficulty of selling the assets of the enterprise is reduced.
