
534 Principles of Supply Chain Management
In all of the improvements in net income and cash ow projected from the changes
in working capital, it is interesting to observe what happens to the current ratio.
The current ratio—current assets divided by current liabilities—is one of the oldest
ratios used by creditors to decide whether the borrower is creditworthy. In Table 15.1,
as the management of working capital improves, the current ratio declines from a high
of 7.5–1.8, which normally indicates a deterioration of the company’s ability to repay
loans. In this case, the creditors need to understand that a decrease in the current
ratio does ...