Question

Current assets on the common-size balance sheet over the past three years have increased from 32 to 35 percent while current liabilities have decreased from 29 to 25%. This indicates the firm has increased its ______.

Answer 1

Current Ratio

Step-by-step explanation:

If the current assets on the common-size balance sheet over the past three years have increased while current liabilities have decreased; This indicates the firm has increased its current ratio.

Current ratio gives the picture of how financially stable or liquid the company is, which is further indicative of the company's financial health.

When the current ratio is falling, it suggests that the company is unable to meet its short-term obligations which is financially catastrophic.

But when the current assets are bigger than the current liabilities, then the current ratio is greater than 1, implying that it can pay off its short term liabilities as they fall due.