If a company's current ratio increases over time, this could indicate all but which of the following?
A) Increase in debt financing.
B) Increase in the ability to handle short-term obligations.
C) Increased investment in low and non-earning assets.

Question

Quizplus · Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. An increase in debt financing typically affects long-term liabilities rather than current liabilities, and thus, it does not directly imply an increase in the current ratio. An increase in the current ratio generally indicates better liquidity, meaning the company is in a better position to handle short-term obligations and may have increased its current assets, which could include investments in low and non-earning assets.

If a Company's Current Ratio Increases Over Time, This Could