What is the formula for calculating the current ratio?

The current ratio is a financial metric that measures a company's ability to cover its short-term obligations with its short-term assets. The formula for calculating the current ratio is derived from the relationship between current assets and current liabilities.

In this case, the correct formulation is the ratio of current assets to current liabilities. This is essential because it provides a clear picture of liquidity, indicating whether a company has enough resources to pay off its immediate debts. A higher current ratio suggests a better liquidity position, while a lower current ratio may indicate potential liquidity issues.

Understanding this metric helps stakeholders, such as creditors and investors, assess the financial health of a company and its capacity to handle short-term financial commitments. The other choices do not accurately reflect this relationship, which is why they do not represent the correct calculation for the current ratio.