Question

In financial ratios, the Current Ratio is:

• A. Current Assets / Current Liabilities
• B. Current Liabilities / Current Assets
• C. Total Assets / Total Liabilities
• D. Total Liabilities / Total Assets

Hint:

Current Ratio high = good liquidity = less risk of default.

Answer 1

The Correct Option is A

The Current Ratio checks if a firm can pay its short-term debts with its short-term assets. A ratio above 1 is good — it means the firm can pay current liabilities easily. It’s a key measure of liquidity.

Answer 2

Formula Recall: 'Current Ratio' should immediately trigger one formula: Current Assets ÷ Current Liabilities.

This tests whether short-term assets can cover short-term debts — a ratio above 1 signals the firm can pay its near-term obligations comfortably.

The inverted version (Liabilities/Assets) and the 'total' versions swap either the ratio direction or the wrong asset/liability scope — neither matches the standard Current Ratio definition.