An increase in the current ratio due to increased inventory and receivables could be consistent with a recession in the economy.

Question

Quizplus · Accepted Answer

During a recession, sales may slow down and customers may take longer to pay their bills, leading to an increase in inventory and receivables. This would result in an increase in the current ratio, but it does not necessarily indicate a healthy financial position as it may also imply decreased liquidity.

An Increase in the Current Ratio Due to Increased Inventory