3.2 XYZ’s balance sheet as at 31 December 2004 had the following items (arranged here in random order):

EUR EUR Trade payables 5,000 Financial assets 1,500 Trade receivables 7,000 Other current assets 3,500 Short-term borrowings 8,000 Property, plant and equipment 8,500 Cash and cash equivalents 2,000 Wages payable 1,500 Current portion of bonds payable 2,000

(a) What is the current ratio at 31 December 2004?

(b) Explain what the current ratio indicates.