An increase in the current liabilities to total assets ratio has the effects of ________ on profits and ________ on risk.
A) an increase; an increase
B) an increase; a decrease
C) a decrease; a decrease
D) a decrease; an increase

Question

Quizplus · Accepted Answer

An increase in the current liabilities to total assets ratio means that the company has more short-term debt relative to its assets. This can increase profits in the short term because the company can use the borrowed money to invest in projects that generate a return. However, it also increases risk because the company has more debt to repay.

An Increase in the Current Liabilities to Total Assets Ratio