Asked by Diana Garcia on Apr 29, 2024
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Your boss decides that your firm will switch from a restrictive short-term financial policy to a more flexible policy. You should expect to see the firm's current ratio:
A) Rise, due to the higher investment in current assets and the reduced use of short-term financing.
B) Fall, due to the lower investment in current assets and the increased reliance on short-term financing.
C) Rise, due to the lower investment in current assets and the greater use of short-term financing.
D) Fall, due to the higher investment in current assets and the reduced use of short-term financing.
E) To either rise or fall, but the use of short-term debt will increase.
Current Ratio
The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations with its current assets over its current liabilities.
Restrictive Policy
A restrictive policy refers to a set of rules or regulations designed to limit or control certain activities or behaviors, often implemented to ensure safety, security, or compliance with legal standards.
Flexible Policy
A strategy or guideline that allows for adaptability and changes depending on circumstances or conditions.
- Identify the effects of adaptable and strict short-term fiscal policies on an organization's financial well-being and its capacity to fulfill immediate financial commitments.
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Learning Objectives
- Identify the effects of adaptable and strict short-term fiscal policies on an organization's financial well-being and its capacity to fulfill immediate financial commitments.
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