The formula for current ratio is ________.

Question

Quizplus · Accepted Answer

Current ratio is calculated by dividing current assets by current liabilities. This gives an indication of a company's short-term liquidity, i.e., whether it has enough current assets to cover its current liabilities. Option A is incorrect as it divides current assets by noncurrent assets, which is not relevant for calculating liquidity. Option B is incorrect as it divides current assets by total assets, which includes noncurrent assets as well, making it an inaccurate measure of liquidity. Option D is incorrect as it divides current assets by total liabilities, which does not give an accurate representation of a company's ability to meet its short-term obligations.

The Formula for Current Ratio Is ________