If a firm's current ratio improves from 1.5 to 2.0, what has likely happened?
A) Current liabilities have decreased
B) Fixed assets have increased
C) Ownership equity has increased
D) Long-term debt has decreased

Question

Quizplus · Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. If the current ratio improves (increases) from 1.5 to 2.0, it means that current assets have increased or current liabilities have decreased. Since option A is the only choice that explains a decrease in current liabilities, it is the best answer. Option B and D are not relevant to the question, and option C does not provide an explanation for the change in the current ratio.

If a Firm's Current Ratio Improves from 1