recently the m&m company has been having problems. As a result, its financial si
ID: 2489681 • Letter: R
Question
recently the m&m company has been having problems. As a result, its financial situation has deteriorated. M&m approached the first national bank for a badly needed loan, but the loan officer insisted that the current ratio (now 0.5) be improved to at least 0.8 before the bank would even consider granting the credit. Which of the following actions would do the most to improve the ratio in the short run?A. Collecting some of the current accounts receivable B. Selling some of the existing inventory at cost C. Purchasing additional inventory on credit D. Using some cash to pay off some current liabilities E. Paying off the long term debt recently the m&m company has been having problems. As a result, its financial situation has deteriorated. M&m approached the first national bank for a badly needed loan, but the loan officer insisted that the current ratio (now 0.5) be improved to at least 0.8 before the bank would even consider granting the credit. Which of the following actions would do the most to improve the ratio in the short run?
A. Collecting some of the current accounts receivable B. Selling some of the existing inventory at cost C. Purchasing additional inventory on credit D. Using some cash to pay off some current liabilities E. Paying off the long term debt recently the m&m company has been having problems. As a result, its financial situation has deteriorated. M&m approached the first national bank for a badly needed loan, but the loan officer insisted that the current ratio (now 0.5) be improved to at least 0.8 before the bank would even consider granting the credit. Which of the following actions would do the most to improve the ratio in the short run?
A. Collecting some of the current accounts receivable B. Selling some of the existing inventory at cost C. Purchasing additional inventory on credit D. Using some cash to pay off some current liabilities E. Paying off the long term debt
Explanation / Answer
c. purchasing additional inventory on credit
current ratio is a figure resulted from dividing current assets by current liabilities of a firm. This figure is important because it measures the liquidity stand of a firm. Normally, it is assumed that higher the ratio, higher is the liquidity and vice versa. by purchasing inventory improves liquidity of the company or a more in a conservative apporch.
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