Question:
What is Current Ratio?
What is Current Ratio?
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Current Ratio = Current Assets / Current Liabilities — a liquidity ratio, ideal around 2:1.
Updated On: Sep 24, 2026
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Solution and Explanation
Step 1: Give the formula:
Current Ratio = Current Assets ÷ Current Liabilities.
Step 2: Explain what it measures:
It measures a firm's short-term liquidity — its ability to pay off liabilities due within a year using assets that will be converted to cash within a year; a ratio around 2:1 is generally considered a safe/ideal benchmark.
Final Answer:
Current Ratio = Current Assets / Current Liabilities; it shows a firm's ability to meet its short-term obligations.
Current Ratio = Current Assets ÷ Current Liabilities.
Step 2: Explain what it measures:
It measures a firm's short-term liquidity — its ability to pay off liabilities due within a year using assets that will be converted to cash within a year; a ratio around 2:1 is generally considered a safe/ideal benchmark.
Final Answer:
Current Ratio = Current Assets / Current Liabilities; it shows a firm's ability to meet its short-term obligations.
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