18. Warren Buffett's 1st Rule - What is the Current Ratio and the Debt to Equity Ratio

1st Rule: A stock must be managed by vigilant leaders

Define Vigilant Leadership

Carefully observant or attentive; on the lookout for possible danger. And the possible danger is the debt.

Understand the Debt to Equity Ratio

WB likes Debt/Equity < .50

Understand the Current Ratio

• How will the company handle debt in the next 12 months?
• It compares the current assets to the current liabilities.
• WB likes the current ratio > 1.50

Current Ratio보다는 지급능력을 조금 더 잘 보여주는 Quick Ratio.
$$
\text{Current Ratio} = \frac{\text{Current Asset - Inventory}}{\text{Current Liability}}
$$

What levels of debt are acceptable