The formula for computing a current ratio is:
A) Current assets/Total assets.
B) Current assets/Total liabilities.
C) Current assets/Total equity.
D) Current assets/Current liabilities.

Question

Quizplus · Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay its short-term obligations with its current assets. Therefore, the correct formula for computing a current ratio is dividing current assets by current liabilities. Option D is the correct choice as it divides current assets by current liabilities. Option A is incorrect as it divides only current assets by total assets, which does not give a true indication of a company's ability to pay short-term debts. Options B and C are also incorrect as they use total liabilities and total equity instead of current liabilities.

The Formula for Computing a Current Ratio Is