# Current Assets to Fixed Assets Ratio

The finance manager must determine the optimum level of current assets so that shareholders' value is maximised. A firm needs both fixed and current assets to support a given level of output.

## Measuring the Level of Current Assets

$$\text{CA/FA Ratio} = \frac{\text{Current Assets}}{\text{Fixed Assets}}$$

Assuming a constant level of fixed assets and all other factors constant:

CA/FA Ratio	Indicates
Higher ratio	Conservative current assets policy
Lower ratio	Aggressive current assets policy

## Key Takeaway

With fixed assets held constant, the CA/FA ratio is a quick lens on policy: more current assets per rupee of fixed assets = conservative (safe, more liquid); fewer = aggressive (lean, riskier).

⚠️ Common exam mistakes

Mixing up the direction — a HIGHER CA/FA ratio means conservative; a LOWER ratio means aggressive.
Forgetting the 'assuming fixed assets constant / all else equal' condition required for the inference to hold.

Reference:

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