The current ratio is current assets divided by current liabilities. If a company's current ratio is 2.1, that means its current assets are 2.1 times as great as its current liabilities. Paying off a portion of its accounts payable with cash would decrease current assets and current liabilities by the same amount. Because current assets are greater than current liabilities, the same amount of decrease in both will be a smaller percentage of decrease in current assets than it will current liabilities. As a result the ratio will increase. As an example, suppose the company has $210,000 in current assets and $100,000 in current liabilities, a 2.1 current ratio. It uses cash to pay off $20,000 in accounts payable, so current assets decrease to $190,000 and current liabilities decrease to $80,000. The current ratio increases to 2.375.
The current ratio is current assets divided by current liabilities. If a company's current ratio is 2.1, that means its current assets are 2.1 times as great as its current liabilities. Paying off a portion of its accounts payable with cash would decrease current assets and current liabilities by the same amount. The current ratio would not move closer to the quick ratio as a result.
The current ratio is current assets divided by current liabilities. If a company's current ratio is 2.1, that means its current assets are 2.1 times as great as its current liabilities. Paying off a portion of its accounts payable with cash would decrease current assets and current liabilities by the same amount. The current ratio would not remain unchanged as a result.
The current ratio is current assets divided by current liabilities. If a company's current ratio is 2.1, that means its current assets are 2.1 times as great as its current liabilities. Paying off a portion of its accounts payable with cash would decrease current assets and current liabilities by the same amount. The current ratio would not decrease as a result.
|
