You observe that a company's current ratio has increased significantly. What could this indicate?
A) Contingent liabilities are not recorded
B) Accounts payable is understated
C) Expenses are inappropriately capitalized as assets
D) Fixed assets are overstated

Question

Quizplus · Accepted Answer

An increase in the current ratio indicates that the company has more current assets relative to its current liabilities. This could be due to a decrease in accounts payable, which would result in an understated accounts payable balance and an increase in the current ratio. This could, in turn, be an indication that the company is managing its working capital effectively. However, it is important to look at the other financial statements and ratios to get a complete picture of the company's financial health.

You Observe That a Company's Current Ratio Has Increased Significantly