Business FinancesQuestion 1136 of 1632
The current ratio is calculated as:
a.Total liabilities over total owner equity
b.Cash on hand over annual sales revenue
c.Current assets over current liabilities
d.Net income for the year over the total assets
Explanation
The current ratio is current assets over current liabilities, a measure of whether short-term obligations can be met; about 2:1 is comfortable and below 1:1 signals trouble. Liabilities over equity is the debt-to-equity ratio, which measures leverage rather than liquidity. Cash over sales is a turnover-style figure that ignores everything else owed within the year. Net income over total assets is return on assets, a profitability measure.
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