Expert: Doug Ingram - 2/9/2004

Question
Hi Mr. Ingram,
 I read in "Investing for Dummies" where a company's "Current Liabilities" shouldn't approach too close to it's "Current Assets", but the author didn't mention "How Close". What would be a figure,(ballpark or other), that one might consider as a "Red Flag" or "Warning Signal", in percentage or dollar amounts, to alert one that the Assets and Liabilities are getting too close? Also, "Value Line" mentions the percentage of "Senior Directors" and "Company Executives" invested in their companies. What might be considered a "Healthy Percentage" when assessing the amount of senior officials investing in their own companies?  Thank you very much!
Sincerely,
Mike Eidson, Lac.

Answer
I'm not going to be a lot of help!  Our focus is on fixed income and you need an equity analyst.

No company wants to risk becoming strapped for cash.  The Savings industry went upside down from being extremely liablity sensitive.  

If current liabilities are on top of current assets, a company risks having to issue debt or borrow to raise cash.  Generally speaking, and depending on the industry, companies should have a ratio of 1.1 or greater on CA/CL (after subtracting cash needed for operations from the CA number).