Q1. [2] § (I) Liquidity Ratios § (iii) Turnover Ratios § (II) Leverage/Capital structure Ratios
What do mean by Current Ratio ? Also write the formula of Current Ratio.
Previously asked in CBSE board exam
2025 92 Q16
Generated by claude-sonnet-4-6 · 2026-06-15 07:07 · grounding rag
Model Answer
Current Ratio: Current Ratio is a liquidity ratio that measures the ability of a firm to meet its current liabilities using its current assets. A higher current ratio indicates greater short-term solvency.
Formula:
$$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$$
Source: Liquidity Ratios, Chapter 10
Explanation
- For 2 marks: one mark is for the definition and one for the formula.
- Always mention that it measures the firm's ability to meet short-term/current liabilities — this is the key phrase examiners look for.
- Writing the formula clearly in fraction form is essential; do not just state it in words.
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