Which ratio is calculated as current assets divided by current liabilities?

Which ratio is calculated as current assets divided by current liabilities?

• A. Gearing
• B. Current ratio
• C. Net profit margin
• D. Acid test ratio

Answer: (B)

This measures short-term liquidity—the ability to cover current obligations with assets that can be turned into cash soon. It’s calculated by dividing current assets by current liabilities, so it uses all current assets (including inventory) to see if there are enough resources to pay what’s due in the near term. This is the right one because it directly compares what the business owns in the short term to what it owes, giving a clear view of immediate financial cushion. A higher ratio means stronger liquidity, while a ratio below 1 signals potential trouble meeting obligations. The other concepts refer to different ideas: gearing looks at debt versus equity in the capital structure, net profit margin measures profitability, and the acid-test (quick) ratio excludes inventory to test liquidity with only the most liquid assets.

This measures short-term liquidity—the ability to cover current obligations with assets that can be turned into cash soon. It’s calculated by dividing current assets by current liabilities, so it uses all current assets (including inventory) to see if there are enough resources to pay what’s due in the near term. This is the right one because it directly compares what the business owns in the short term to what it owes, giving a clear view of immediate financial cushion. A higher ratio means stronger liquidity, while a ratio below 1 signals potential trouble meeting obligations. The other concepts refer to different ideas: gearing looks at debt versus equity in the capital structure, net profit margin measures profitability, and the acid-test (quick) ratio excludes inventory to test liquidity with only the most liquid assets.