If a farm has current assets of 200,000 and current liabilities of 100,000, the current ratio is which?

If a farm has current assets of 200,000 and current liabilities of 100,000, the current ratio is which?

• A. 1.0:1
• B. 1.5:1
• C. 2.0:1
• D. 2.5:1

Answer: (C)

The current ratio measures short-term liquidity by comparing current assets to current liabilities. It is found by dividing current assets by current liabilities. Here, 200,000 divided by 100,000 equals 2.0, so the farm has a 2:1 current ratio. This means there are twice as many current assets as current liabilities, indicating solid short-term liquidity. If the liabilities were higher or assets lower, the ratio would drop (for example, 200,000 assets with 133,333 liabilities gives about 1.5:1), while if assets were higher relative to liabilities, the ratio would rise.

The current ratio measures short-term liquidity by comparing current assets to current liabilities. It is found by dividing current assets by current liabilities. Here, 200,000 divided by 100,000 equals 2.0, so the farm has a 2:1 current ratio. This means there are twice as many current assets as current liabilities, indicating solid short-term liquidity. If the liabilities were higher or assets lower, the ratio would drop (for example, 200,000 assets with 133,333 liabilities gives about 1.5:1), while if assets were higher relative to liabilities, the ratio would rise.