A firm's current ratio has steadily increased over the past 5 years, from 1.9 to 3.8. What would a financial analyst probably conclude from this information?
A) The firm's fixed assets turnover has improved.
B) The firm's liquidity position has improved.
C) The firm's stock price has increased.
D) The firm's financial leverage has improved.
E) The firm's market value has increased.

Question

Quizplus · Accepted Answer

The current ratio measures a firm's ability to pay short-term obligations with current assets. An increase in current ratio from 1.9 to 3.8 indicates that the firm has improved its liquidity position by having more current assets to cover its short-term obligations. This could be viewed positively by financial analysts and potential investors as it suggests the firm has become better equipped to handle financial challenges that may arise in the short term.

A Firm's Current Ratio Has Steadily Increased Over the Past