Which ratio equals current assets divided by current liabilities?

• A. Quick ratio
• B. Current ratio minus 1
• C. Current ratio
• D. Debt ratio

Answer: (C)

Measuring short-term liquidity, the current ratio shows how many dollars of current assets are available for every dollar of current liabilities. It is calculated by dividing current assets by current liabilities, which is exactly what the question describes. Interpreting it, a ratio above 1 indicates that current assets exceed current liabilities, signaling better ability to cover short-term obligations.

The quick ratio is a more stringent measure that excludes inventories from current assets, since inventories are less liquid. Subtracting 1 from the current ratio isn’t a standard, widely used liquidity metric. The debt ratio looks at overall leverage, comparing total liabilities to total assets, and doesn’t reflect short-term liquidity.