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Question

Which of the following is normally treated as a satisfactory ratio of current assets to current liabilities?

A
1:1
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B
2:1
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C
3:1
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D
1:2
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Solution

The correct option is C 2:1
The rule of thumb for a satisfactory current ratio is 2:1. Let Current assets be Rs.100000 and the Current liabilities be Rs.40000
Now, Current ratio = Current assets/ Current liabilities
= 100000/40000
= 2.5:1 .
This current ratio is satisfactory as it shows that the current assets available are 2.5 times the amount of current liabilities.

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