Last year,ABC Tools had a current ratio of 2.0 and an acid-test ratio of 1.0.This year the firm's current ratio is 2.5 and its acid-test ratio is 1.5.ABC's _____ has _____.
A)profitability; improved
B)profitability; deteriorated
C)liquidity; improved
D)liquidity; deteriorated

Question

Quizplus · Accepted Answer

The current ratio and acid-test ratio are measures of a company's liquidity, not profitability. An increase in both ratios from last year to this year indicates that ABC Tools' ability to cover short-term obligations with its short-term assets has improved.

Last Year,ABC Tools Had a Current Ratio of 2