Gator Corporation currently has a current ratio equal to 0.65.If Gator Corporation increases current assets and current liabilities by the same amount, what will happen to their current ratio?
A)Increase
B)Decrease
C)Stay the same
D)Change, but more information is required to determine the direction of the change.
E)None of the above.

Question

Quizplus · Accepted Answer

When both current assets and current liabilities increase by the same amount, the current ratio will increase if the initial ratio is less than 1, as the increase in the numerator (current assets) has a greater proportional effect than the increase in the denominator (current liabilities).

Gator Corporation Currently Has a Current Ratio Equal to 0