Doran Corp.has a current ratio of 6.Under which of the following scenarios might this indicate a problem?
A) inventories are increasing due to the introduction of a new product
B) the company is holding cash in expectation of making a large investment in equipment
C) receivables are increasing due to increasing sales
D) inventories are increasing and the industry in which Doran Corp.operates is experiencing a recession

Question

Quizplus · Accepted Answer

A current ratio of 6 indicates that Doran Corp. has a significant amount of current assets relative to its current liabilities. However, if inventories are increasing while the industry is experiencing a recession, it may indicate that Doran Corp. is not able to sell its inventory in a timely manner, which could lead to cash flow problems and potentially impact the company's ability to meet its obligations in the short term.