Question

State true or false with reason.

Current Ratio measures the liquidity of the business.

Options

• True

• False

Answer 1

This statement is True.

Current ratio shows relation between current assets and current liabilities. If the proportion of current assets is higher than current liabilities, liquidity position of business entity is considered good. More liquidity means more short-term solvency. From the above it is proved that current ratio measures the liquidity of the business.