How is the current ratio calculated?



Section 4. Liquidity Ratios

Q24. Current ratio
How is the current ratio calculated?

A24.
Current ratio
= Current assets / Current liabilities

[Entity 24-a]
Current assets = $2,736,000
Current liabilities = $1,800,000
Current ratio
= $2,736,000 / $1,800,000 = 1.52

[Entity 24-b]
Current assets = $2,842,000
Current liabilities = $2,900,000
Current ratio
= $2,842,000 / $2,900,000 = 0.98

[Note]
Entity 24-a is better prepared with current assets to pay current liabilities than is Entity 24-b.