Question

Other things being equal, most managers would prefer to report liabilities as non-current rather than current. The logic behind this preference is that long-term classification permits the company to report _________ working capital and ____________ debt to equity ratio.

Answer 1

Most managers prefer to classify liabilities as non-current in order to show higher working capital and a lower debt to equity ratio.

Step-by-step explanation:

When it comes to reporting liabilities, most managers prefer to classify them as non-current rather than current. The reasoning behind this preference is that by classifying liabilities as non-current, the company can show higher working capital and a lower debt to equity ratio.

Let me explain. Working capital is a measure of a company's liquidity, which is important for its day-to-day operations. By reporting liabilities as non-current, the company can increase its working capital because it reduces the portion of liabilities that need to be paid off in the short term.

Additionally, the debt to equity ratio is a measure of a company's financial leverage. By reporting liabilities as non-current, the company can lower its debt to equity ratio because it decreases the amount of short-term debt on the books.