Question

Walter Industries’ current ratio is 0.5. Considered alone, which of the following actions would increase the company’s current ratio?

a) Paying off short-term debt.
b) Purchasing inventory on credit.
c) Distributing dividends.
d) Selling long-term assets.

Answer 1

To increase the current ratio, Walter Industries should consider paying off short-term debt.

Step-by-step explanation:

The current ratio is calculated by dividing current assets by current liabilities. A higher current ratio indicates better short-term financial health. In this case, Walter Industries has a current ratio of 0.5, which suggests that its current assets are less than its current liabilities.

To increase the current ratio, the company should either increase its current assets or decrease its current liabilities. Out of the given options, the action that would increase the current ratio is a) Paying off short-term debt. By paying off short-term debt, the company reduces its current liabilities and improves the current ratio.