An accounting ratio used to determine whether a company’s current assets excluding its stock (i.e. just its debtors book and cash balance) is sufficient to pay off its current liabilities. The ratio is debtors plus cash expressed as a percentage of current liabilities. The logic is that it could be a problem to sell the company’s stock in a cash-flow crisis. This ratio has become more important since the new Companies Act (71 of 2008) came into effect in May 2011 with its doctrine of solvency and liquidity. Directors have to assert that the company has sufficient cash-flow to meet its expected expenses for the next twelve months before paying out a dividend, lending money to a director or conducting a share buy-back.

All information and data contained within the PDSnet Glossary terms is for informational and educational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet glossary terms is based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any glossary term for any reason.« Back to Glossary Index