A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might
A) improve its collection practices and pay accounts payable, thereby decreasing current liabilities and increasing the current and quick ratios.
B) increase inventory, thereby increasing current assets and the current and quick ratios.
C) decrease current liabilities by utilizing more long-term debt, thereby increasing the current and quick ratios.
D) improve its collection practices, thereby increasing cash and increasing its current and quick ratios.

Question

Quizplus · Accepted Answer

Decreasing current liabilities by utilizing more long-term debt increases the current ratio, as it reduces the denominator (current liabilities) while keeping current assets constant.

A Firm Has a Current Ratio of 1; in Order