19.2.1.a. Current Ratio Formula

Try these first

1. 1.

   What is the formula for calculating the Current Ratio?

   Hint

   Think about the two parts of the company's balance sheet.

2. 2.

   If a company has $400,000 in current assets and$200,000 in current liabilities, what is its Current Ratio?

   Hint

   Use the formula and plug in the given numbers.

3. 3.

   What is the formula for the Current Ratio?

   • Current Liabilities / Current Assets
   • Current Assets / Current Liabilities
   • Current Assets + Current Liabilities

   Hint

   Recall the structure of the definition.

4. 4.

   True or False: A Current Ratio below 1 indicates a company can easily cover its short-term obligations.

   • True
   • False

   Hint

   Consider what the ratio indicates about assets versus liabilities.

5. 5.

   A tech startup has current assets of $1,200,000 and current liabilities of$800,000. Evaluate the startup's liquidity situation and discuss possible implications for future investment.

   Hint

   Think about the implications of having a strong ratio in terms of attracting investors.

6. 6.

   If a company consistently reports a Current Ratio below 1.2 despite growth in revenue, what should management consider to improve liquidity?

   Hint

   Focus on operational strategies that can directly impact liquidity.