What does the current ratio measure?

• A. The ratio of current assets to total assets.
• B. The ratio of current liabilities to current assets.
• C. A company's ability to meet its short-term obligations with its current assets; Current Assets / Current Liabilities.
• D. Net income divided by current liabilities.

Answer: (C)

The current ratio is a liquidity measure that shows whether a company can pay its short-term obligations using its short-term assets. It’s calculated by dividing current assets by current liabilities, reflecting how much in current assets exists to cover what’s due soon. A higher ratio suggests better short-term solvency and easier near-term financial flexibility. The other options don’t fit because they either relate current assets to total assets, invert the relationship, or mix profitability with liabilities, none of which capture the intended measure of short-term ability to meet obligations.