Question

Current Ratio is a type of ______.

Options

• Solvency Ratio

• Liquidity Ratio

• Activity Ratio

• Profitability Ratio

Answer 1

Current Ratio is a type of liquidity ratio.

Explanation:

The Current Ratio is a short-term liquidity ratio that evaluates a business’s ability to pay off its current obligations (due within one year) using its current assets. It is calculated by dividing Current Assets by Current Liabilities and focuses strictly on immediate financial health and cash availability. While solvency ratios track long-term debt capacity, the current ratio is used exclusively to analyse short-term liquidity.