Question
KRJ Enterprises reported a current ratio of 1.5 last year and 2.1 this year. It reported a quick ratio of 1.1 last year and 1.8
KRJ Enterprises reported a current ratio of 1.5 last year and 2.1 this year. It reported a quick ratio of 1.1 last year and 1.8 this year. At the same time its days' sales in receivables increased from 22 days to 51 days and its days' sales in inventory decreased from 73 days to 72 days. Based on this data, what is the most likely conclusion an analyst would make regarding the company's liquidity?
Although its current and quick ratios both increased, the company is likely less liquid due to the large increase in accounts receivable outstanding. | ||
Because changes in days' sales in receivables and in inventory are not at all related to changes in the current ratio and quick ratio, one cannot make any assumptions about the company's liquidity based on this data. | ||
Because the increase in days' sales in receivables is so much larger than the decrease in days' sales in inventory, one can conclude that the company has much greater liquidity. | ||
Because the current ratio and quick ratio have both increased, an analyst could definitively state that the company is more liquid. |
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