What ratio is calculated by dividing current assets by current liabilities?

The ratio calculated by dividing current assets by current liabilities is known as the Working Capital Ratio, also referred to simply as the Current Ratio. This financial metric is used to assess a company's short-term liquidity and its ability to meet short-term obligations. A higher ratio indicates that the company has a greater ability to cover its current liabilities with its current assets, which is a positive sign of financial health.

This ratio is particularly important for understanding a company's operational efficiency and liquidity risk. If current assets significantly exceed current liabilities, it suggests the business is in a solid position to handle any immediate financial demands. Conversely, if current liabilities are approaching or exceeding current assets, it may raise concerns about the company's ability to sustain its operations in the short term.

In this context, the other choices do not pertain to the same calculation or provide insights into short-term financial stability. The Gross Profit Margin relates to profitability, the Acid Test Ratio is a stricter measure of liquidity that excludes inventory, and the Debt Equity Ratio pertains to long-term financial leverage and capital structure.