Chapter3: Organizing And Financing A New Venture
Section: Chapter Questions
Problem 9DQ
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Question
Comment on the changes between these two years. How do the changes in current ratios between 2017 and 2016 reflect changes in liquidity position and, other things equal, shareholder value (i.e., stock price)?
Transcribed Image Text:2017
2016
Answer
Amounts
Amounts
Answer
Transcribed Image Text:Current Assets
Current Ratio
15,548
1.22
13,849
1.18
Current Liabilities
12,708
11,730
Expert Solution
Step 1
The current ratio is the measurement of short-term ability to meet the firm’s short-term obligations. It shows the liquidity position of the firm.
Step 2
As per the given ratios in 2016 and 2017, the current ratio increased from 1.18 to 1.22 which indicates that the firm reduced its current liabilities such as accounts payables by paying cash and maintaining high liquidity in accounts receivables.
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