The current ratio:
A) Is used to measure a company's profitability.
B) Is used to measure the relationship between assets and long-term debt.
C) Measures the effect of operating income on profit.
D) Is used to evaluate a company's ability to pay its short-term obligations.
E) Only relates to long term liabilities.

Question

Quizplus · Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay its short-term obligations. It is calculated by dividing current assets by current liabilities. A higher current ratio indicates a better ability to pay off short-term debts.

The Current Ratio