If a company has a current ratio of 1.3:1, what respective effects will the borrowing of cash by short-term debt and collection of trade receivables have on the ratio?

Question

Quizplus · Accepted Answer

- Borrowing of cash by short-term debt will increase the current assets and current liabilities by the same amount, which will not have a significant effect on the current ratio (it may slightly decrease it).
- Collection of trade receivables will increase the current assets without affecting the current liabilities, which will increase the current ratio. Therefore, the ratio will improve.

If a Company Has a Current Ratio of 1