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Hi sir,
I couldn’t understand why it is said in the question that ‘Companies who manage liquidity well in this industry have a current ratio lower than the norm’. Because from my understanding, it should be the opposite. Could you please explain. Thank you!!! 🙂
It depends on the industry, but the question specifically says that in this industry they are managing well if the current ratio is lower than the norm – and that is all that is needed to be able to answer the question!!
(All companies want to keep their net current assets low, because they are not actually earning money for the company – they want to collect receivables quickly etc.. The current ratio only starts to be a worry if it is falling and if it starts to approach 1.)
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