A firm's current ratio has steadily increased over the past 5 years, from 1.9 to 3.8. What would a financial analyst probably conclude from this information?
A)The firm's fixed assets turnover has improved.
B)The firm's liquidity position has improved.
C)The firm's stock price has increased.
D)The firm's financial leverage has improved.
E)The firm's market value has decreased.

Question

Quizplus · Accepted Answer

The current ratio indicates a firm's ability to pay its current liabilities with its current assets. An increasing current ratio over several years indicates that the firm has improved its liquidity position, i.e. it has more assets that can be utilized to pay off its short-term debts.

A Firm's Current Ratio Has Steadily Increased Over the Past