Current Assets to Proprietor's Fund Ratio:

Current Assets to Proprietors' Fund Ratio establishes the relationship between current assets and shareholder's funds.

The purpose of this ratio is to calculate the percentage of shareholders funds invested in current assets.

Formula:

[Current Assets to Proprietors Funds = Current Assets / Proprietor's Funds]

Example:

This may be expressed either as a percentage , or as a proportion. To illustrate, if the value of current assets is $36,000 and the proprietors funds are $180,000 the relevant ratio would be calculated as follows:

Current Assets to Proprietors Funds = 36,000 / 180,000

= 0.2

This may also be expressed as 20%. It means that 20% of the proprietors funds have been invested in current assets.

Significance:

Different industries have different norms and therefore, this ratio should be studied carefully taking the history of industrial concern into consideration before relying too much on this ratio.

 

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