Which formula is used to find the Current Ratio?

The formula for the Current Ratio is indeed derived from dividing current assets by current liabilities. This ratio is a key indicator of a company's liquidity and ability to meet short-term obligations. It provides insight into the financial health of the business by measuring the company's resources that are readily available to cover its current debts.

When current assets are greater than current liabilities, a higher current ratio indicates that the company is in a strong position to pay off its short-term liabilities with its short-term assets. Conversely, a current ratio less than one suggests that the company may face difficulties in meeting its obligations. This measure is widely used by investors and stakeholders to assess a company's short-term financial stability.

Other options focus on different financial metrics that do not relate to the calculation of the Current Ratio. For instance, some deal with profitability, inventory management, or overall asset performance, but none of them function as a measure of liquidity like the Current Ratio does. Therefore, the choice that involves current assets and current liabilities directly aligns with the definition and significance of the Current Ratio.