Jill's business has current assets of R50 000 and current liabilities of R25 000.Which statement is true about the company's current ratio?
A)The ratio is 50% and is acceptable for most industries.
B)The ratio is 2 and is acceptable for most industries.
C)The ratio is R25 000 and is not acceptable for most industries.
D)Current ratio cannot be determined from the information given.

Question

Quizplus · Accepted Answer

The current ratio is a measure of a company's ability to meet its short-term obligations. It is calculated by dividing current assets by current liabilities.

In this case, the current ratio would be:

Current ratio = Current assets / Current liabilities
Current ratio = R50 000 / R25 000
Current ratio = 2

A current ratio of 2 is generally considered acceptable for most industries. It indicates that the company has twice as many current assets as it does current liabilities, which suggests that it should be able to meet its short-term obligations without difficulty.

Therefore, the correct answer is B: The ratio is 2 and is acceptable for most industries.

Jill's Business Has Current Assets of R50 000 and Current