Suppose a company unexpectedly receives a huge order for its main product. To cope with this, the owner borrows money to rent an additional facility to fill the orders and to pay the temporary workers who will produce the large order. The owner does this hoping that the additional costs will be more than covered by the revenue from selling the additional units of the product. Which ratio will be most affected by these decisions?
A) The short-term solvency ratio
B) The long-term solvency ratio
C) The profitability ratio
D) The activity ratio
E) The equity ratio

Question

Quizplus · Accepted Answer

The short-term solvency ratio will be most affected because borrowing money to rent an additional facility and to pay temporary workers increases the company's short-term liabilities, directly impacting its ability to meet short-term obligations.

Suppose a Company Unexpectedly Receives a Huge Order for Its