A firm's current ratio is 1.5:1. It wants to maintain a current ratio of 2:1 by paying off some current liabilities. Which of the following will happen? MCQ with Answer and Explanation
A firm's current ratio is 1.5:1. It wants to maintain a current ratio of 2:1 by paying off some current liabilities. Which of the following will happen?
A. Working capital will increase
B. Working capital will remain unchanged
C. Current assets will decrease
D. Working capital will decrease
Answer: Option B
Solution (By JKSSB Mock Tests)
Paying current liabilities reduces both current assets (cash) and current liabilities equally, leaving working capital (CA - CL) unchanged, though ratio improves.
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