Multiple choice

How do you get the current ratio?

  1. Divide current liabilities by current assets

  2. Divide long-term liabilities by current assets

  3. Divide capital assets by current liabilities

  4. Divide current assets by current liabilities
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Current Ratio = Current Assets / Current Liabilities. This liquidity ratio measures a company's ability to pay short-term obligations. A ratio above 2:1 is generally considered healthy, below 1:1 indicates potential liquidity problems. Option A inverts the calculation, B uses long-term liabilities, and C incorrectly uses capital assets (fixed assets).

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