Question

What is Current Ratio?

Hint:

Current Ratio = Current Assets / Current Liabilities — a liquidity ratio, ideal around 2:1.

Answer 1

Step 1: Think of it as a short-term safety-cushion measure:
For every rupee of current liability due soon, the ratio tells you how many rupees of current assets are available to cover it.

Step 2: State the calculation and typical interpretation:
Computed as Current Assets divided by Current Liabilities, a value comfortably above 1 (conventionally around 2) signals adequate liquidity, while a value below 1 signals the firm may struggle to pay short-term dues.

Final Answer:
Current Ratio (Current Assets ÷ Current Liabilities) is a liquidity ratio testing whether short-term assets comfortably cover short-term liabilities.