Question

Current ratio is used to find:

• A. Long term solvency
• B. Short term solvency
• C. Profitability
• D. None of these

Hint:

Use the current ratio to assess a company's ability to meet short-term liabilities, ensuring financial stability in the near term.

Answer 1

The Correct Option is B

Step 1: Understanding the current ratio.
The current ratio is calculated as: \[ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \] It measures a company's ability to meet its short-term obligations using its short-term assets.

Step 2: Identifying the purpose of the ratio.
The current ratio focuses on short-term solvency, not long-term solvency or profitability. It helps assess the liquidity of a company.