The current ratio is a measure of liquidity that reflects
A)how many current assets you own free and clear.
B)your debt payments for the current period.
C)how many times you can pay off your current liabilities by using your liquid assets.
D)the portion of your total liabilities that are considered current liabilities.

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities, and reflects how many times a company can pay off its current liabilities by using its liquid assets. It is a measure of a company's short-term liquidity and ability to meet its current obligations. Option A is incorrect because the current ratio does not reflect how many current assets a company owns "free and clear." Option B is incorrect because the current ratio is not related to debt payments for the current period. Option D is partially correct, as the current ratio does consider current liabilities, but it does not reflect the portion of total liabilities that are current.

The Current Ratio Is a Measure of Liquidity That Reflects