If the current ratio for a company is 2.5, this means that:
A) the company is able to pay all its debts immediately.
B) its current income is 250% of its previous income.
C) if the company had $100 of current liabilities, it also has $250 of current assets.
D) its debt is 2.5 times the industry average.

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. A current ratio of 2.5 means that for every $1 of current liabilities, the company has $2.5 of current assets. Therefore, if the company had $100 of current liabilities, it would also have $250 of current assets. This indicates that the company has enough current assets to pay off its current liabilities.

If the Current Ratio for a Company Is 2