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Many companies have adopted JIT inventory methods to reduce the size of their inventories. What would you

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Many companies have adopted JIT inventory methods to reduce the size of their inventories. What would you expect to happen to the current ratios of such companies? Would you interpret the current ratio differently for JIT companies compared to other companies? Explain.

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If a company reduces its inventories a component of current assets and everything else rem...View the full answer


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Introduction to Management Accounting

Introduction to Management Accounting

ISBN: 978-0133058789

16th edition

Authors: Charles Horngren, Gary Sundem, Jeff Schatzberg, Dave Burgsta

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The current ratio is a financial ratio that measures a company\'s ability to pay its short-term obligations with its short-term assets. It is calculated by dividing a company\'s current assets by its current liabilities. The formula for calculating the current ratio is: Current Ratio = Current Assets / Current Liabilities Current assets are assets that can be converted to cash within one year, while current liabilities are debts that are due within one year. A current ratio of 1:1 or greater is generally considered good, as it indicates that a company has enough current assets to cover its current liabilities. A current ratio of less than 1:1 may suggest that a company may have difficulty meeting its short-term obligations. It\'s important to note that the current ratio is just one of many financial ratios that can be used to assess a company\'s financial health. It should be used in conjunction with other financial ratios and qualitative factors to make informed decisions about investing or lending to a company.

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