DEBT MANAGEMENT AND SHORT-TERM LIQUIDITY RATIOS The following items appear on the balance sheet of Lawless Company at the end of 2008 and 2009:

2009 2008 Current assets $6,000 $3,000 Long-term assets 7,000 4,000 Current liabilities 2,000 3,000 Long-term liabilities 7,000 0 Stockholders’ equity 4,000 4,000 Required:

Between 2008 and 2009, indicate whether Lawless Company’s debt-to-equity ratio increased or decreased. Also, indicate whether the company’s current ratio increased or decreased. Interpret these ratios.

Cornerstone Exercise