If the trend of the current ratio is increasing, while the trend of the acid-test ratio is decreasing over a period of time, this could be

a. a warning that the firm is: paying "extra" dividends.

b. purchasing too much treasury stock.

c. carrying excess inventories.

d. depleting its inventories.

e. having trouble collecting its accounts receivables.

Question

Social Studies

Keyla

26 March, 23:59

If the trend of the current ratio is increasing, while the trend of the acid-test ratio is decreasing over a period of time, this could be

a. a warning that the firm is: paying "extra" dividends.

b. purchasing too much treasury stock.

c. carrying excess inventories.

d. depleting its inventories.

e. having trouble collecting its accounts receivables.

+2

Answers (1)

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Fernando · Answer 1

c. carrying excess inventories.

Explanation:

The current ratio of a company is used to measures whether the company has enough of its resources to meet the short-term obligations. It is used to compare an organization's current assets to the current liabilities of it. It is also known as liquidity ratio.

The acid test ratio compares a company's total cash and accounts receivable to the total current liabilities of the company. It is also known as quick ratio.

The current ratio of a company is increasing means the company is having more inventories in stock. This inventories can be considered as assets which is not quickly liquidated.

Hence the correct option is (c).