Correct Answer: Current Assets / Current Liabilities
Solution:
The current ratio is calculated by dividing current assets by current liabilities.
How is the current ratio calculated?
Practice Questions
Q1
How is the current ratio calculated?
Current Assets / Current Liabilities
Current Liabilities / Current Assets
Total Assets / Total Liabilities
Total Liabilities / Total Assets
Questions & Step-by-Step Solutions
How is the current ratio calculated?
Step 1: Identify the current assets of the company. Current assets are things the company owns that can be quickly converted to cash, like cash itself, inventory, and accounts receivable.
Step 2: Identify the current liabilities of the company. Current liabilities are what the company owes and need to be paid within a year, like accounts payable and short-term loans.
Step 3: Use the formula for the current ratio, which is: Current Ratio = Current Assets / Current Liabilities.
Step 4: Plug in the numbers you found for current assets and current liabilities into the formula.
Step 5: Calculate the result to find the current ratio.
Current Ratio – A financial metric that measures a company's ability to pay short-term obligations with its short-term assets.
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