Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
Based on the following financial information, which best describes the company's liquidity and quality of its current assets over the past three years? 20Y1 1.4
Based on the following financial information, which best describes the company's liquidity and quality of its current assets over the past three years? 20Y1 1.4 0.4 $ 66 20Y2 1.4 0.5 $97 20Y3 1.4 0.5 $ 135 Current ratio Quick ratio Working capital (000) Accounts receivable days on hand Inventory days on hand 8 11 18 123 126 108 O Liquidity is trending downward as shown by the declining current and quick ratios. The ratios would be even lower were it not for the 10-day slowdown of the collection period. While the company's quick ratio and working capital indicate its liquidity is improving, a substantial part of the improvement is the direct result of the 10-day slowdown in the collection period. Until we know what caused the slowdown, the company's liquidity is unclear and its asset quality may actually be deteriorating. Liquidity has doubled as shown by the doubling of working capital. In fact, it may have more than doubled because inventory is reported at a lower value due to a 15-day shortening of the holding period. O Liquidity is declining as shown by the steady increase in the company's reliance on inventory to cover current liabilities. This, coupled with the decreasing amount of inventory due to a 15-day shortening of the holding period, indicates even less liquidity
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started