A firm's current ratio has steadily increased over the past 5 years,from 1.9 five years ago to 3.8 today.What would a financial analyst be most justified in concluding?
A) The firm's fixed assets turnover probably has improved.
B) The firm's liquidity position probably has improved.
C) The firm's stock price probably has increased.
D) Each of the above is likely to have occurred.
E) The analyst would be unable to draw any conclusions from this information.

Question

Quizplus · Accepted Answer

The current ratio measures a firm's liquidity position, and an increase in the current ratio indicates an improvement in liquidity. Therefore, financial analysts would be justified in concluding that the firm's liquidity position has probably improved. Choices A and C have no direct relationship with changes in the current ratio, and choice D is overly broad and speculative.

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