Economics · Accounting and Financial Statement Analysis
A mid-sized manufacturing firm is facing a liquidity crunch as its current ratio has dropped to 1.1:1, well below the industry standard of 2:1. Which of the following specific financial maneuvers will lead to a definitive improvement in the current ratio of the firm?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Negotiating with existing trade creditors to convert their short-term dues into a medium-term loan payable after 18 months.
- 2Selling a redundant piece of heavy machinery at a book loss and using the cash received to purchase short-term marketable securities.
- 3Purchasing raw materials on credit for 90 days to increase the inventory levels while simultaneously increasing the accounts payable by the same amount.
- 4Issuing long-term debentures to the public and utilizing the entire proceeds to pay off existing short-term bank overdrafts and trade payables.✓
Correct answer
Issuing long-term debentures to the public and utilizing the entire proceeds to pay off existing short-term bank overdrafts and trade payables.
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