In addition to looking at the current level of the debt-equity ratio, it is also good to look at how this ratio changes over time. In general, a falling debt-equity ratio means that the company is paying off some of the loans it has taken out. This is usually good news for people who want to invest in the company. Another measurement that can tell you whether a company will be able to pay what it owes is the current ratio, which uses current assets and current liabilities in its calculation. Just to refresh your memory, a current asset is an asset that is due the company within one year.
Current liabilities are liabilities due in less than one year.
Examples could be a loan the company takes out which is due in 3 months. The current ratio, which is usually shown in decimal format, is current assets divided by current liabilities. In general, the higher the current ratio, the better off the company because it indicates that the company can afford to pay its immediate bills. For example, a current ratio of 2 is better than a current ratio of 1. Once again, look at the current ratio of other companies in the same industry as the company you are investigating.