If a company's current ratio increases from 1.2 to 1.4 from one year to the next, and its quick ratio decreases from 0.2 to 0.15 over the same time period, this indicates:
A)the liquidity must have increased.
B)the accounts receivable have decreased.
C)the inventory management should be further examined.
D)the current liabilities have decreased.

Question

Quizplus · Accepted Answer

The increase in the current ratio suggests improved liquidity, but the decrease in the quick ratio indicates that inventory might be increasing, which could be tying up resources. This suggests that inventory management should be examined.

If a Company's Current Ratio Increases from 1