Financial ratios are widely used to analyze the financial position and performance of firms and business entities. For example: current ratio is commonly used to measure and assess short-term liquidity. Based on this, please answer the following questions with respect to current ratio, or with respect to any other financial ratio of your choice.

a.Explain how Current Ratio is computed and why it provides a measure for short-term liquidity.

b.Using the Current Ratio, how would you assess whether the liquidly level for a firm is too high, too low or just about right?