How can a company reverse a trend of higher current liabilities over current assets?

Expert Solution

Current Ratio is the liquidity ratio which shows the financial stability of a company in a short term period .

Current Ratio = Current Assets / Current Liabalities

Current Ratio is also called working capital ratio

When the Current Ratio is less than one It shows the firms inability to meet short term obligations

It must not happen . Current Liabalities must be reduced and current assets should be increased to an optimum levels

The following can be done to reverse it

*Increase Creditors collection period

*Decrease Debtors collection period

*Increase Cash sales

*Maintain optimum Inventory level

*Increase short term investments

ekkarill92 answered 2 years ago

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