A Current Dilemma

Assets are ahead of liabilities by a disturbingly small margin in some industries.
S.L. MintzApril 1, 2009

Few metrics signal looming danger more sharply than a declining current ratio, yet many industries began the year with current assets outpacing current liabilities by a narrow margin.

Seven sectors saw current ratios stumble in 2008, according to REL Consultancy, which compiled the data. Worst hit were independent power producers and energy traders, which suffered a notable 36 percent decline in their aggregate current ratio, to 1.4. The road-and-rail industry closed its 2008 books with a deficient 0.9 current ratio, and two other industries (diversified telecom services and beverages) recorded declines that left current assets equal to current liabilities. Given the outlook for the rest of this year, many companies are skating on thin ice. “Without liquid assets or access to sufficient credit, companies will have to scramble just to meet their payrolls and accounts payable,” says chief analyst Karlo Bustos of REL.

Current ratio for select industries, 2008

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