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Current ratio notes

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A. A firm has $1.2 million in current assets and $1.0 million in current liabilities. If it uses $.5 million of cash to pay off some of its accounts payable, what will happen to the current ratio? What happens to net working capital?

B. A firm uses cash on hand to pay for additional inventories. What will happen to the current ratio? What will happen to the quick ratio?

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Current ratio notes are provided.

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A. current ratio = current assets / current liabilities = 1.2 /1.0 = 1.2
When it uses $.5 million of cash to pay off some of its accounts payable, ...

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