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When current ratio is 2 : 1 and if equal increase in current assets and current liabilities would result in

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets on its balance sheet to satisfy its current debt and other payables. When the current ratio is 2:1, an equal increase in current assets and current liabilities would decrease the current ratio. Let us understand this through an example;Current Assets = Rs. 200000 and Current Liabilities = Rs. 100000Current ratio = Current assets/Current liabilities = 200000/100000 = 2:1 Now let us increase the current assets and current liabilities by Rs. 100000 and calculate the new current ratio ;Current ratio = 300000/200000 = 1. 5:1. Thus, option 3 is the correct answer.

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