Below is a firm's current ratios for 2015-2017. Should you be concerned? If so, why? 2017...
Below is a firm's current ratios for 2015-2017. Should you be concerned? If so, why?
| 2017 | 2016 | 2015 | |
| Current | 1.07 | 1.80 | 2.05 |
Yes, because the downward trend means the firm is getting further away from technical insolvency
Yes, because the downward trend means the firm is getting closer to technical insolvency
No, because the downward trend means the firm is getting further away from technical insolvency
No, because the downward trend means the firm is getting closer to technical insolvency
Homework Answers
Option B is correct.
Yes, because the downward trend means the firm is getting closer to technical insolvency
Explanation:
Decrease in current ratios shows that overtime current liabilities is getting larger than current assets and in future current assets can no longer cover current liabilities, this situation can lead to insolvency due to liabilities getting larger than assets, which is known as technical insolvency.
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