Comparing this year's results to last year's, Hector discovered that his firm's current ratio improved from 1.5 to 2.0. Which of the following has happened?

Question

Quizplus · Accepted Answer

An increase in the current ratio means that current assets have increased relative to current liabilities. Since the current ratio is calculated by dividing current assets by current liabilities, the only way for the current ratio to increase is for current liabilities to decrease, current assets to increase, or a combination of both. Fixed assets, owners' equity, and long-term debt would not directly affect the current ratio.

Comparing This Year's Results to Last Year's, Hector Discovered That