SE10-10. Ratio analysis. (LO 3)

A 5-year comparative analysis of Low Light Company’s current ratio and quick ratio follows.

2004

2005

2006

2007

2008

current ratio

1.19

1.85

2.50

3.40

4.02

Acid- test ratio

1. i5

1.02

0.98

0.72

0.50

a. What has been happening to the liquidity of Low Light Company over the 5 years presented?

b. Considering both ratios, what does the trend indicate about what has happened to the makeup of Low Light’s current assets over the 5-year period?