Your boss decides that your firm will switch from a restrictive short-term financial policy to a more flexible policy. You should expect to see the firm's current ratio:
A) Rise, due to the higher investment in current assets and the reduced use of short-term financing.
B) Fall, due to the lower investment in current assets and the increased reliance on short-term financing.
C) Rise, due to the lower investment in current assets and the greater use of short-term financing.
D) Fall, due to the higher investment in current assets and the reduced use of short-term financing.
E) To either rise or fall, but the use of short-term debt will increase.

Question

Quizplus · Accepted Answer

Switching to a more flexible short-term financial policy typically means a company will increase its investment in current assets and reduce its reliance on short-term financing, leading to a higher current ratio.

Your Boss Decides That Your Firm Will Switch from a Restrictive