B-There TransportationB-There Transportation calculated the following amounts concerning its financial information for the years ending December 31, 2019 and 2018.
2019
2018
Current Ratio4.0 to 1
2.0 to 1
Refer to B-There Transportation. Is the change in the current ratio favorable or not? Explain.
What will be an ideal response?
The current ratio increased from 2.0 to 1 to 4.0 to 1. This is an unusually large increase for most companies. A larger current ratio means a company is more liquid. This increase is favorable, although care must be taken so that the current ratio does not become too large, which may indicate an inefficient cash management system.
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