ABC Inc. has determined that it needs to increase its current ratio in order to be in compliance with a creditor's loan agreement. All else being equal, which of the following ways would be best for increasing their current ratio?
A) Increasing long-term assets
B) Decreasing current assets
C) Decreasing current liabilities
D) Increasing long-term liabilities

Question

Quizplus · Accepted Answer

Decreasing current liabilities would directly increase the current ratio (current assets/current liabilities). The other options would either have no effect on the current ratio or actually decrease it. Increasing long-term assets would not affect the current ratio because they are not included in the calculation. Decreasing current assets would lower the numerator of the current ratio and decrease the ratio. Increasing long-term liabilities would also have no effect on the current ratio because they are not included in the calculation.

ABC Inc Has Determined That It Needs to Increase Its Current