Which of the following statements is most correct?
A) If a company increases its current liabilities by $1,000 and simultaneously increases its inventories by $1,000, its current ratio must rise.
B) If a company increases its current liabilities by $1,000 and simultaneously increases its inventories by $1,000, its quick ratio must fall.
C) A company's quick ratio may never exceed its current ratio.
D) Answers b and c are correct.
E) None of the answers above is correct.

Question

Quizplus · Accepted Answer

The quick ratio excludes inventories from current assets, so increasing inventories while increasing current liabilities will decrease the quick ratio. The quick ratio can never exceed the current ratio because the current ratio includes all current assets, while the quick ratio excludes inventories.

Which of the Following Statements Is Most Correct