Asked Nov 26, 2019

What is current ratio and how is it calculated?


Expert Answer

Step 1

Liquidity ratio:

Liquidity or solvency ratio helps to measure the ability of the concern to meet its short term obligations like trade creditors, bank credits, dividends payable, bills payable, provision for taxation and outstanding expenses with the available short period solvent assets like cash balance, bank balance, inventory, debtors, bills receivable, prepaid expenses, and marketable securities.

Following are the two measures of l...

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