What measure would increase if asset values rise while liabilities remain constant?

What measure would increase if asset values rise while liabilities remain constant?

• A. Net Worth
• B. Current Ratio
• C. Debt-To-Asset Ratio
• D. Quick Ratio

Answer: (A)

Net worth (owners’ equity) increases when assets rise while liabilities stay the same because net worth is simply assets minus liabilities. If assets go up and liabilities stay constant, the difference gets larger by the amount of the asset increase. For example, if assets rise by 50,000 and liabilities don’t change, net worth increases by 50,000. Other measures depend on the mix of assets. The current ratio and quick ratio rely on current assets, so they may or may not rise depending on whether the asset increase is in current assets or non-current assets. The debt-to-asset ratio would actually move in the opposite direction (it would decrease) since the asset total is growing while the debt remains unchanged.

Net worth (owners’ equity) increases when assets rise while liabilities stay the same because net worth is simply assets minus liabilities. If assets go up and liabilities stay constant, the difference gets larger by the amount of the asset increase. For example, if assets rise by 50,000 and liabilities don’t change, net worth increases by 50,000.

Other measures depend on the mix of assets. The current ratio and quick ratio rely on current assets, so they may or may not rise depending on whether the asset increase is in current assets or non-current assets. The debt-to-asset ratio would actually move in the opposite direction (it would decrease) since the asset total is growing while the debt remains unchanged.