How to calculate coverage ratio

Ratio coverage characterizes the ability of companies to repay current liabilities due to the sale of current assets. This is the most common measure of the liquidity of the organization. The higher the value, the more solvent the company.

This ratio shows how many rubles of current assets the company's short-term ruble obligations. In other words, it allows you to determine which part of current liabilities, the company may pay the expense of current assets. Therefore, theoretically, the organization in which the level of current assets exceeds the level of short-term liabilities can be regarded as well functioning.

Calculate the coefficient of coverage is pretty simple. It is defined as the ratio of current assets to current liabilities of the firm. In this case, the asset refers to cash in hand and the company on accounts in banks, receivables with a maturity of less than 12 months, the cost of commodity-material assets, other current assets, for example, short-term investments. But it should be remembered that not all the assets shown in the balance sheet, are current. Some trade balances or overdue receivables have zero liquidity. Under current liabilities refers to a loan with the nearest maturity, liabilities to employees of the organization, budget, extrabudgetary funds, etc.

The coefficient value of the coating, usually in different industries are not the same. Its normative value is 2. The ratio below the established level is considered critical. The increase in this indicator in the dynamics is regarded as a positive aspect and shows that the risk associated with the difficulty in the implementation of the enterprise's assets is reduced.