A company's current ratio is decreasing every year and currently stands at 1.00.This indicates:

Question

Quizplus · Accepted Answer

A current ratio of 1.00 indicates that the company's current assets are just enough to cover its current liabilities. If the current ratio is decreasing every year, it means that the company is becoming less able to pay off its current liabilities using its current assets. Therefore, the decreasing current ratio suggests that the company's liquidity position is declining. As a result, the best choice is (C): a declining ability to pay current liabilities. Options (A) and (D) are incorrect because a decreasing current ratio does not indicate an improving financial position or an increase in profitability. Option (B) is incorrect because a decreasing current ratio suggests a worsening liquidity position, not an improving one.

A Company's Current Ratio Is Decreasing Every Year and Currently