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CMA Intermediate · Financial Management and Business Data Analytics · Comparative, Common-Size Financial Statements and Trend Analysis

Arjun Traders has the following comparative data: current assets ₹6,00,000 (2023-24) and ₹7,50,000 (2024-25); current liabilities ₹3,00,000 (2023-24) and ₹5,00,000 (2024-25). Which conclusion from comparative analysis is correct?

The current ratio fell from 2.0 to 1.5 because current liabilities grew by about 66.7%, much faster than current assets at 25%. Working capital also declined from ₹3,00,000 to ₹2,50,000, so liquidity weakened.

  1. ACurrent ratio improved from 2.0 to 1.5 because current assets rose by 25%
  2. BCurrent ratio fell from 2.0 to 1.5 because current liabilities rose faster than current assetsCorrect
  3. CWorking capital rose by ₹1,50,000 since current assets rose by ₹1,50,000
  4. DCurrent ratio remained unchanged because both items increased

Explanation

Current ratio 2023-24 = 6,00,000/3,00,000 = 2.0; 2024-25 = 7,50,000/5,00,000 = 1.5. Current liabilities rose 66.7% against 25% for current assets. Working capital moved from ₹3,00,000 to ₹2,50,000, a fall of ₹50,000, so option C is wrong.

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