Current Ratio is defined as

• A. Total Liabilities / Total Current Assets
• B. Total Assets / Total Liabilities
• C. Total Current Assets / Total Current Liabilities
• D. Net Income / Total Equity

Answer: (C)

The main idea is liquidity: it shows how well a company can meet its short-term obligations using assets that are expected to be converted to cash within a year. The current ratio is current assets divided by current liabilities, including items like cash, marketable securities, accounts receivable, and inventory on the asset side, and accounts payable, short-term debt, and other current liabilities on the liability side. A ratio above 1 means there are more current assets than current liabilities, suggesting the firm can cover its near-term debts; a ratio below 1 may indicate potential liquidity problems. The other options mix different concepts: total assets over total liabilities is a leverage/solvency view, not a liquidity ratio; net income over total equity is a profitability measure; and a different arrangement like liabilities divided by current assets would not reflect the standard liquidity assessment.