Current Assets/Current Liabilities
This ratio reflects the number of times short-term assets cover short-term liabilities and is a fairly accurate indication of a company 's ability to service its current obligations. A higher number is preferred because it indicates a strong ability to service short-term obligations. The composition of current assets is a key factor in the evaluation of this ratio. Depending on the type of business or industry, current assets may include slow-moving inventories that could potentially affect analysis of a company 's liquidity how long could it potentially take to convert raw materials and inventory into finished products? (For this reason, the quick ratio may be preferable to the current ratio because it eliminates inventory and prepaid expenses from this ratio for a more accurate gauge of a company 's liquidity and ability to meet short-term obligations.)
The current ratio for Hershey Company is 1.44 indicates the company’s ability to service short-term obligations is satisfactorily. However, the value of the quick ratio will provide a clearer indication of the company’s success in this area.
(Cash + Marketable Securities + Trade Accounts Receivable)/ Current Liabilities
This ratio, also known as the acid test ratio, measures immediate liquidity - the number of times cash, accounts receivable, and marketable securities cover