If a company's current ratio increases from 1.2 to 1.4 from one year to the next, and its quick ratio decreases from 0.2 to 0.15 over the same time period, this indicates:
A) company's liquidity must have increased
B) accounts receivable have decreased
C) inventory management should be further examined
D) current liabilities have decreased

Question

Quizplus · Accepted Answer

The increase in the current ratio suggests improved liquidity, but the decrease in the quick ratio indicates that inventory might be a larger portion of current assets, warranting further examination of inventory management.

If a Company's Current Ratio Increases from 1