The correct answer is A. Current assets and current liabilities.
The current ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations. It is calculated by dividing current assets by current liabilities. A high current ratio indicates that a company has a large amount of liquid assets relative to its short-term obligations. This means that the company is likely to be able to pay its bills on time.
Liquid assets are assets that can be easily converted into cash. Examples of liquid assets include cash, marketable securities, and accounts receivable. Current liabilities are obligations that are due within one year. Examples of current liabilities include accounts payable, short-term notes payable, and accrued expenses.
A low current ratio may indicate that a company is having difficulty meeting its short-term obligations. This could be due to a number of factors, such as a decline in sales, an increase in expenses, or a decrease in cash flow. If a company’s current ratio is too low, it may be at risk of defaulting on its loans or going out of business.
It is important to note that the current ratio is only one measure of a company’s liquidity. Other measures, such as the quick ratio and the cash ratio, may provide a more complete picture of a company’s ability to pay its short-term obligations.