If a hospital has current assets of $4,000,000 and current liabilities of $5,000,000, what is the current ratio?

• A. 0.8
• B. 1.25
• C. 0.5
• D. 2.0

Answer: (A)

The current ratio tests liquidity by comparing short‑term assets to short‑term obligations. It is calculated as current assets divided by current liabilities. In this case, 4,000,000 divided by 5,000,000 equals 0.8. So the hospital has 0.8 times as many current assets as current liabilities, indicating tighter short‑term liquidity. A ratio below 1 suggests potential difficulty meeting immediate obligations if they come due. The value 0.8 is the result you get from the given numbers; other provided figures would require different asset or liability amounts (for example, 1.25 would need more assets relative to liabilities, 0.5 would pair with 2,000,000 in assets and 4,000,000 in liabilities, and 2.0 would come from 10,000,000 in assets with 5,000,000 in liabilities).