Question

Which financial ratio is computed by dividing current assets by current liabilities?

A) quick ratio
B) debt to equity
C) accounts receivable turnover
D) current ratio

Answer 1

The current ratio is computed by dividing current assets by current liabilities to determine a company's ability to pay off short-term liabilities.

Step-by-step explanation:

The financial ratio that is computed by dividing current assets by current liabilities is the current ratio.

The current ratio measures a company's ability to pay off its short-term liabilities with its short-term assets.

To calculate the current ratio, you divide the total current assets by the total current liabilities. For example, if a company has $100,000 in current assets and $50,000 in current liabilities, the current ratio would be 2 ($100,000 / $50,000).