The current ratio is computed as follows:
A)Current assets divided by total assets.
B)Current assets minus current liabilities.
C)Current assets divided by current liabilities.
D)Retained earnings divided by current liabilities.

Question

Quizplus · Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay off its short-term liabilities with its current assets. It is calculated by dividing current assets by current liabilities. Option A is incorrect because it only takes into account the proportion of current assets to total assets, not the company's ability to meet its short-term obligations. Option B subtracts current liabilities from current assets, which is not a correct calculation for the current ratio. Option D is incorrect because retained earnings are not relevant to calculating current liquidity.

The Current Ratio Is Computed as Follows