You are in a meeting and one of your colleagues makes the following statement: Liquidity is excellent

Question:

You are in a meeting and one of your colleagues makes the following statement:

“Liquidity is excellent and our current ratio has increased from last year. Our current ratio is at 2.6, which is well above the recommended level of 2.0. This is due to a larger increase in current assets than in current liabilities, in particular in accounts receivable and inventory. This shows that we have excellent debt-paying ability and are doing better than last year.”

Required

Critique your colleague’s statement.

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...

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