To calculate the current (working capital) ratio it is necessary to:
A) divide profit by current assets.
B) divide revenue by current assets.
C) divide current assets by current liabilities.
D) divide current liabilities by current assets.

Question

Quizplus · Accepted Answer

The current (working capital) ratio is calculated by dividing current assets by current liabilities. This ratio measures a company's ability to pay its short-term debts with its current assets. A ratio of 1 or higher indicates that a company can meet its current obligations, while a ratio below 1 indicates that it may have difficulty meeting its short-term debt obligations. Options A and B are incorrect because they involve dividing revenue or profit by current assets, which does not provide an accurate measure of the company's ability to pay its debts. Option D is also incorrect because it involves dividing current liabilities by current assets, which would give a very different ratio and doesn't provide an accurate measure of the company's liquidity.

To Calculate the Current (Working Capital) Ratio It Is Necessary