Safeco’s current assets total $30 million, versus $15 million of current liabilities, while Risco’s current assets are $20 million, versus $40 million of current liabilities. Both firms would like to “window dress” their end-of-year financial statements, and to do so they tentatively plan to borrow $20 million on a short-term basis and to then hold the borrowed funds in their cash accounts. Which statement below best describes the results of these transactions?
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The transactions would increase both firms’ financial strength as measured by their current ratios.
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The transactions would decrease both firms’ financial strength as measured by their current ratios.
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The transactions would increase Safeco’s financial strength as measured by its current ratio but decrease Risco’s current ratio.
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The transactions would decrease Safeco’s financial strength as measured by its current ratio but increase Risco’s current ratio.
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