A company has approached you for credit. Your initial review identifies a sharp increase in payables and a decline in sales. What initial inference can you draw from this?

This is not a cause for concern because the increase in payables will be as a result of the company increasing its purchases in advance of big sales push.

The trends taken together are a red flag because the decrease in sales will mean higher inventory and therefore higher payables in relation that inventory.

The trends taken together are a red flag and further investigation will be required to identify the causes of this.

This is a red flag because the increase in payables will result from the company withholding payments as consequence of the decline in revenues.