Doran Corp.has a current ratio of 6.Under which of the following scenarios might this indicate a ?
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 high liquidity, but if inventories are increasing during a recession, it might suggest that the company is unable to sell its products, leading to potential financial difficulties.