A) Current Ratio: What effect would the following actions have on a firm’s current ratio? Assume that net working capital is positive.
Inventory is purchased.
A supplier is paid.
A short-term bank loan is repaid.
A long-term debt is paid off early.
A customer pays off a credit account.
Inventory is sold at cost.
Inventory is sold for a profit.
B) Current Ratio and Quick Ratio: In recent years, Dixie Co. has greatly increased its current ratio. At the same time, the quick ratio has fallen. What has happened? Has the liquidity of the company improved?