QuestionJune 6, 2025

Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0

Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0
Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is
greater than 1.0

Solution
4.5(229 votes)

Answer

An action that increases current assets or decreases current liabilities will increase the current ratio. Explanation 1. Understand the Current Ratio The current ratio is calculated as **Current Ratio = \frac{\text{Current Assets}}{\text{Current Liabilities}}**. To increase this ratio, either increase current assets or decrease current liabilities. 2. Analyze Actions Increasing current assets (e.g., collecting accounts receivable) or decreasing current liabilities (e.g., paying off short-term debt) will increase the current ratio if it is greater than 1.0.

Explanation

1. Understand the Current Ratio<br /> The current ratio is calculated as **Current Ratio = \frac{\text{Current Assets}}{\text{Current Liabilities}}**. To increase this ratio, either increase current assets or decrease current liabilities.<br /><br />2. Analyze Actions<br /> Increasing current assets (e.g., collecting accounts receivable) or decreasing current liabilities (e.g., paying off short-term debt) will increase the current ratio if it is greater than 1.0.
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