Ratios and your finances


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4 Responses

  1. Avatar Sena Ustum says:

    I think you should include the current portion of long term debt on the current ratio calculation. Thus, the ratio will be lower and it is not going to signal inefficiency.

    • Mike Rawson Mike Rawson says:

      Hi Sena,

      I think that’s fine. In the example above, the long-term debts are a mortgage and a car loan.

      I suspect that only a small proportion of the principal is due in the next year, but given the size of the mortgage it might be a thousand or two. That would bring the current ratio down from 7.4 to something like 3.

      The bigger point is that the current ratio is more useful to people with short-term debts (since it’s about your ability to pay them).

      Long-term investors will have eliminated their debts but will still carry cash (an emergency fund, at least), so the current ratio will be misleadingly high.



  2. Avatar Sena Ustum says:

    Hi again,

    This makes sense. By the way, I have just discovered your blog and loved it. It is way more beneficial than the blogs on how to save 60% of your salary by eating noodle only. Both the way you write things and the way your approach to the subjects are really good. I would say it is the most underrated early retirement blog I have seen so far.


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Ratios and your finances

by Mike Rawson time to read: 4 min
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