The current ratio is equal to which of the following formulas?

Correct option is A

Correct Answer: (a) Current Assets / Current Liabilities

Explanation:

• Current ratio is a liquidity ratio used to measure a firm’s ability to meet its short-term obligations.
• It is calculated as:
  Current Ratio = Current Assets / Current Liabilities
• Current assets include:
• Cash, inventory, receivables, etc.
• Current liabilities include:
• Short-term debts, payables, etc.
• A higher ratio indicates better short-term financial strength and solvency.

Information Booster:

• Ideal current ratio is generally considered 2:1.
• It is widely used in financial analysis and credit evaluation.

Additional Knowledge:

• Total Assets / Total Liabilities (Option B): Indicates overall solvency, not liquidity.
• Total Liabilities / Total Assets (Option C): Represents debt ratio.
• (Assets - Liabilities) / Total Liabilities (Option D): Not a standard financial ratio.
• None of the above: Incorrect since option (a) is correct.