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Example of circumstances that changes ratios

Consider each of the following situations independently of each other.

1.Current ratio increases from one period to the next.
2.Accounts receivable turnover increases from one period to the next.
3.Accounts payable turnover increases from one period to the next.

Question 1

Provide one example of when the underlying circumstances may be such that the observed trend is unfavorable.

Question 2

Provide one example of when the underlying circumstances may be such that the observed trend is favorable.

Solution Preview

1.Current ratio increases from one period to the next.

Favorable: Prices for inventory are way down (reduces inventory size).
Unfavorable: Vendors are not being paid on time (increases ...

Solution Summary

Your tutorial gives you a favorable and unfavorable potential interpretation of each shift.

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