The current ratio is a liquidity ratio that measures a company's ability to pay its short-term obligations with its current assets. It is calculated by dividing current assets by current liabilities. A ratio above 1 indicates that a company has enough current assets to cover its current liabilities, while a ratio below 1 indicates that a company may have difficulty meeting its short-term obligations.

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The Current Ratio Is

Question 78

Multiple Choice

The current ratio is

A) calculated by dividing current liabilities by current assets.
B) used to evaluate a company's liquidity and short-term debt-paying ability.
C) used to evaluate a company's solvency and long-term debt-paying ability.
D) calculated by subtracting current liabilities from current assets.

Correct Answer: