What is the current ratio of ABC Builder if they have $400,000 in current assets and $325,000 in current liabilities?

What is the current ratio of ABC Builder if they have $400,000 in current assets and $325,000 in current liabilities?

• A. 1.25
• B. 1.23
• C. 1.15
• D. 1.30

Answer: (B)

To determine the current ratio, you divide the total current assets by the total current liabilities. In this case, ABC Builder has $400,000 in current assets and $325,000 in current liabilities. The calculation goes as follows: Current Ratio = Current Assets / Current Liabilities Current Ratio = $400,000 / $325,000 Current Ratio = 1.230769... When you round off this figure to two decimal places, it results in 1.23. This indicates that for every dollar of current liabilities, ABC Builder has approximately $1.23 in current assets, which suggests a solid liquidity position. A current ratio above 1 indicates that the company is able to cover its short-term liabilities with its short-term assets, reflecting financial health. Since 1.23 is the result of the calculation, the correct option aligns with this understanding and shows the company's ability to meet its short-term obligations effectively.

To determine the current ratio, you divide the total current assets by the total current liabilities. In this case, ABC Builder has $400,000 in current assets and $325,000 in current liabilities. The calculation goes as follows:

Current Ratio = Current Assets / Current Liabilities

Current Ratio = $400,000 / $325,000

Current Ratio = 1.230769...

When you round off this figure to two decimal places, it results in 1.23. This indicates that for every dollar of current liabilities, ABC Builder has approximately $1.23 in current assets, which suggests a solid liquidity position.

A current ratio above 1 indicates that the company is able to cover its short-term liabilities with its short-term assets, reflecting financial health. Since 1.23 is the result of the calculation, the correct option aligns with this understanding and shows the company's ability to meet its short-term obligations effectively.