A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might ________.
A) improve its collection practices by providing extended credit policy.
B) improve its collection practices and pay accounts payable, thereby decreasing current liabilities and decreasing the current and quick ratios.
C) decrease current liabilities by utilizing more long-term debt, thereby increasing the current and quick ratios.
D) increase inventory, thereby increasing current assets and the current and quick ratios.

Question

Quizplus · Accepted Answer

Decreasing current liabilities by utilizing more long-term debt would increase the current and quick ratios by reducing the denominator in these ratios, thus improving the firm's liquidity without negatively impacting its ability to meet short-term obligations.

A Firm Has a Current Ratio of 1; in Order