Any financial measure is only as good as the information used in calculating it. Honest insights require honest data. Consecutive years of financial measures developed in a consistent manner provide the best information about changes in financial performance and position of a business. The ratio indicates the extent to which current assets, if liquidated, would cover current farm liabilities. Thus, the higher the ratio, the greater is business liquidity.
Lower ratios indicate the potential for cash flow problems.
The ratio can vary significantly during the year, for instance, if a crop has been harvested but not yet sold. Dairies and other businesses with steady inflows of cash can support a lower current ratio than other types of farms. Debt to asset ratio. This ratio indicates the proportion of total assets owed to creditors. The higher the ratio, the greater financial risk the business faces.