Current Ratio =

Question

Current Ratio =

1. A. Current assets / Current liabilities (Correct answer)
2. B. Fixed assets / Current liabilities
3. C. Debt / Current assets
4. D. Debt / Equity

Correct Answer

Option A — Current assets / Current liabilities

Detailed Solution & Explanation

The correct answer is Current assets / Current liabilities.

Key Points

• Current Ratio = Current Assets ÷ Current Liabilities.
• It measures short-term liquidity — a ratio ≥2:1 is generally considered healthy.

Additional Information

• The current ratio is current assets ÷ current liabilities, with 2 : 1 taken as the conventional benchmark.
• The stricter quick or acid-test ratio excludes inventory and prepaid expenses, and its benchmark is 1 : 1.
• Both are liquidity ratios. The other families are solvency (debt-equity), profitability (gross and net margin, return on capital) and activity (stock turnover, debtors turnover).
• A very high current ratio is not automatically good: it can mean idle cash or slow-moving stock rather than healthy liquidity.