CMA Intermediate · Financial Management and Business Data Analytics · Financial Ratio Analysis
Hindustan Agro Ltd has a current ratio of 2:1 with current liabilities of ₹5,00,000. It pays ₹1,00,000 of trade payables in cash. What is the current ratio after this payment?
Paying payables in cash reduces both current assets and current liabilities by ₹1,00,000. The ratio becomes 9,00,000 divided by 4,00,000, which is 2.25:1. A ratio above 1 therefore rises after such a payment.
- A2.00:1
- B2.25:1
- C2.50:1Correct
- D1.80:1
Explanation
Current assets = 10,00,000 and current liabilities = 5,00,000. After paying ₹1,00,000 cash, assets = 9,00,000 and liabilities = 4,00,000, giving 2.25:1. Option 2.00 ignores the effect, and 1.80 reduces only assets.
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