Question: Crane Housing PLC has a current ratio of 2.5 and total current assets worth 5 million. Crane housing also has some long-term borrowings where the

Crane Housing PLC has a current ratio of 2.5 and total current assets worth £5 million. Crane housing also has some long-term borrowings where the bank has stipulated that the current ratio of the firm should not drop below 1.5. The management has planned to take on a new housing project in Birmingham which will increase the inventory by £3 million. The firms plan to fund this inventory by increasing accounts payable.

Explain whether they will be able to follow this plan. Suggest any alternative sources to fund this increase in inventory without affecting the current ratio.

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