W was crammed into the back seat of a car, with scornful men pressed hard against him. Nervously he tried to look out either of the car's side windows. It was no good, the men were blocking his view. He then tried to look out the windshield. Again he was unsuccessful -- W didn't know why but he couldn't manage to see anything out of the vehicle. "At least I'm able to distract myself," he thought, "even if I can't make anything of it."

In spite of this consoling thought, he no longer wanted to look out the window. He couldn't think why, but he felt like laughing. "This is absolutely bizarre," he kept telling himself. "They can't even tell me why I'm arrested." The air inside the car was stuffy, causing the drowsy W to drift into sleep.

An indeterminate amount of time passed by before W awoke, sitting alone at a podium beside a table. An enormous room sprawled out before him. Below, a large crowd of people sat with long, disapproving faces. "Maybe I can get their attention and learn something," W thought to himself. He jumped up and down, did the Macarena, and yelled at the top of his lungs; nothing got the crowd's attention. In desperation, W banged his head down upon the table. His face crashed into a microphone, causing two prolonged emissions of muffled metallic noise. The people looked up.

Eyes wide with embarassment W said, "Excuse me, could you tell me why I'm here?"

A cold voice came from his left, "Mr. W, I am afraid that it is not your place to ask questions." Astounded, W looked at the woman, who he instantly knew to be the Inquisitor. Long white hair flowed to her shoulders. Robes spilled out from her body, forming a pool of purple. She looked neither young nor old, but somehow desirable and luminescent.

"Then... what is my place?" blubbered W.

"May I remind you again, Mr. W, that you are not at liberty to ask questions. Let me... "

W interrupted. "But the men who arrested me answered my questions. I asked what I was accused of and they said it had something to do with working capital... and..." W's words deserted him.

"I see, Mr. W. That is serious indeed. Of course, their information is absolutely incorrect; one would expect men of such low rank to know very little of the case." She waved an inviting hand at the audience, "As you all know, this criminal's case has to do with the current ratio. Working capital does not necessarily tell enough about liquidity..."

W's mind tuned out, riling silently in tumult, "Current ratio! What could that be?" Seeing that no one's attention was focused upon him, W walked down from the podium and across the room. As he went out the door he heard the Inquisitor call to him, "Yes, you may go, we have learned what we need to know...we will call upon you when you are needed again." W shrugged her off and whistled down the hall. "Obviously," W thought, "I cannot lose my case now, my arresters botched it, any reasonable court of law could not proceed... "

A ruffle of clothes, a flash of color, and a ringing of bells: a motley-clad Fool burst through the hallway and fell on top of W. "Hello!" said the Fool, "I'm here to help you!"

"Oh, fabulous!" said W sarcastically.

"No, really, I can help..." insisted the Fool.

"Well," said W, languidly drawing out his vowel sounds, "Come to think of it, I am wondering: what exactly is the current ratio?"

***What is the current ratio?***

1) Current assets/current liabilities
2) Current assets/total liabilities
3) Total assets/current liabilities
4) Current assets/stockholders equity

Liquidity information provided by Joe Louderback.

The answer is 1) Current assets/current liabilities.

Motley Fool, divinely happy to be able to help out, expounded, "As the name suggests, the current ratio tells you how many dollars of current assets you have to cover each dollar of current liabilities. As you can probably now guess, the names of most ratios are very suggestive of the meaning and calculation. So far as liquidity is concerned, the higher the current ratio, the better. But a high current ratio can also mean that the company is not using its assets well. Cash, receivables, and inventory could be too high." The Fool stopped for a second, righted his tipping belled cap, and asked, "Do you understand?"

"I think I do, but I'm lost on one thing, is there a proper number for the current ratio to be?"

Motley Fool smiled, "No magic value for the current ratio exists. The 'optimal' current ratio depends on many factors, especially the level and predictability of cash flows. For many years, a rule of thumb was that an industrial company should keep a current ratio of at least 2 to 1. However, public utilities typically have very low current ratios because they have no inventory and can predict their cash needs accurately. Coca-Cola has a current ratio of .83 to 1, but is not in difficulty because it generates cash so rapidly that it can easily cover its obligations."

W laughed for no reason, thanked the Fool, and headed home.

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