Which current ratio is commonly considered healthy?

• A. Two To One (2.0)
• B. One To One (1.0)
• C. Three To One (3.0)
• D. One Half To One (0.5)

Answer: (A)

The current ratio measures a company’s ability to cover its short-term liabilities with its short-term assets. A ratio around two to one is commonly considered healthy because it provides a comfortable buffer to meet obligations while not tying up excessive capital in assets that aren’t immediately productive.

Two to one means current assets are roughly double current liabilities, offering solid liquidity without indicating overly idle resources. A 1:1 ratio shows just enough to cover liabilities, which can be risky if cash flow dips. A 3:1 ratio signals strong liquidity but may suggest inefficiency, with too much capital tied up in assets. A 0.5:1 ratio points to liquidity problems and potential difficulty meeting obligations.