How does selling inventory at 35% markup affect a firms current ratio?

Answer 1

The current ratio is current assets divided by current liabilities. Both inventory and cash are a current asset. By selling inventory at a 35% mark-up you will increase the current ratio since you will be replacing $1 of inventory with $1.35 of cash (or accounts receivable which is also a current asset). Thus this transaction will result in the current ratio increasing, or improving. Exactly how much it improves will depend on how much inventory is sold and how much other current liabilities and assets the company has.

Answer 2

yep.... da first person got it spot on.... inventory which is a current asset goes out, and cash comes in.... but instead of $1, you get $1.35. so the numerator of current ratio which is current asset, while there is no change in current liabilities... which is the denominator. so there is a increase in current ratio.