Question : Which of the following statements is not true?
Option 1: The current ratio establishes a relationship between Current Assets and Current Liabilities.
Option 2: Current Ratio $=\frac{\text { Current Assets }}{\text { Current Liabilities }}$
Option 3: It measures the ability of the firm to meet its current liabilities within 12 months from the date of the Balance Sheet or within the period of the operating cycle.
Option 4: The current Ratio of 1:1 is considered an ideal ratio
Correct Answer: The current Ratio of 1:1 is considered an ideal ratio
Solution : Answer = The Current Ratio of 1:1 is considered an ideal ratio.
The ideal current ratio is
2:1
. A current ratio of
1:1
means current assets equal current liabilities, which may indicate liquidity challenges. Ideally, a current ratio slightly above one is preferred for financial stability.
Hence, the correct option is 4.
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