Based on Washington's current ratio,which of the following statements is true regarding the company?
A)Washington's current ratio has increased,indicating that the company is in a more favorable position to obtain short-term credit than in 2010.
B)Washington's current ratio has decreased,indicating that the company is in a less favorable position to obtain short-term credit than in 2010.
C)Washington's current ratio has increased,indicating that the company is in a less favorable position to obtain short-term credit than in 2010.
D)Washington's current ratio has decreased,indicating that the company is in a more favorable position to obtain short-term credit than in 2010.

Question

Quizplus · Accepted Answer

The current ratio measures a company's ability to pay off its short-term liabilities using its current assets. A higher current ratio implies that the company is more capable of paying off its short-term liabilities. On the other hand, a lower current ratio signifies that the company is less capable of paying off its short-term debts.

The question states that "Based on Washington's current ratio," Which means we need to compare the current ratio of Washington from 2010 to its current ratio.

If Washington's current ratio has decreased, it means the company has less current assets to pay off its short-term liabilities than it did in 2010. Therefore, the company is in a less favorable position to obtain short-term credit than it was in 2010.

Option A suggests that the current ratio has increased, indicating that the company is in a more favorable position to obtain short-term credit than in 2010, which is opposite of what we deduced from the above explanation.

Option B implies that the current ratio has decreased, which aligns with our explanation and hence is the correct answer.

Option C suggests that the current ratio has increased, indicating the company is in a less favorable position to obtain short-term credit than in 2010, which is absurd because an increase in the current ratio suggests otherwise.

Option D also implies an increase in the current ratio, which contradicts our explanation.

Based on Washington's Current Ratio,which of the Following Statements Is