4-20RQ - Horngren'S Financial And Managerial Accounting

Question

What is the current ratio, and how is it calculated?

Step-by-Step Solution

Answer

Current ratio is a measure which calculates the ability to repay the current liabilities by the current assets. It is calculated by dividing current assets by current liabilities. 

Explanation on Current Ratio

Current ratio measures the financial ability to repay the current obligations (liabilities) by utilizing the current assets.

Formula of Current Ratio

Formula of current ratio is as follows: 

$\mathbf{\text{Current Ratio = }}\frac{\mathbf{\text{Total Current Assets}}}{\mathbf{\text{Total Current Liabilities}}}$