Question

A company has total assets of $2,500,000, current assets of $425,000, total liabilities of $1,575,000, and current liabilities of $320,000. Its current ratio is ______.

Answer 1

A positive current ratio is between 1.2 to 2, which means that an entity has 2 times as many current assets as its liabilities. Here, the current ratio is 1.33: 1, which represents that 1.33 assets are available to fulfill $1 debts.

What is Current Ratio?

The current ratio is the amount of income that measures a company's ability to pay short-term obligations or those that have to be repaid within one year.

The current ratio below 1 means that the company does not have enough liquid assets to cover its short-term liabilities

Formula:

$\rm\,Current \; Ratio = \rm\,\dfrac{Current \;Assets }{Current \;Liabilities}\\\\\rm\,Current \; Ratio = \dfrac{ \ 425,000}{\ 320,000} \\\\\\\rm\,Current \; Ratio = 1.33$

hence,The current ratio is 1.33: 1, which represents that 1.33 assets are available to fulfill $1 debts.

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