How is the current ratio used in setting the debt maturity mix? Can you think of any other financial measures that could also be used in this analysis?
The current ratio is often used as a measure of how to split the amount of debt taken in the third-step of the four-step process between current and long-term to hedge balance sheet maturities. Short-term debt is added to the firm’s liabilities until the current ratio reaches a target value; additional debt financing is long-term. Other measures that could be used are working capital (current assets minus current liabilities) and the quick ratio.