The financial statements of Flathead Lake Manufacturing Company are given below: Note: The common shares are trading in the stock market for $15 per share
-Refer to the financial statements of Flathead Lake Manufacturing Company.The firm's current ratio for 2007 indicates that Flathead's liquidity has ________ since 2006.
A) risen
B) fallen
C) stayed the same
D) can't tell from the information given

Question

The financial statements of Flathead Lake Manufacturing Company are given below:  Note: The common shares are trading in the stock market for $15 per share
-Refer to the financial statements of Flathead Lake Manufacturing Company.The firm's current ratio for 2007 indicates that Flathead's liquidity has ________ since 2006.
A) risen 
B) fallen 
C) stayed the same 
D) can't tell from the information given

Quizplus · Accepted Answer

To determine the change in liquidity, we need to compare the current ratio of 2007 with that of 2006. The current ratio for 2007 is 1.1 (current assets of $440,000 divided by current liabilities of $400,000), while the current ratio for 2006 is 1.5 (current assets of $600,000 divided by current liabilities of $400,000). This indicates that Flathead's liquidity has fallen since 2006, as its ability to meet its short-term obligations has decreased.

The Financial Statements of Flathead Lake Manufacturing Company Are Given