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Capital ratio

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Capital ratio

  • This topic has 3 replies, 2 voices, and was last updated 6 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • January 20, 2019 at 10:09 am #502748
    yusra97
    Participant
    • Topics: 66
    • Replies: 61
    • ☆☆

    Xena has the following working capital ratios:
    20X9 20X8
    Current ratio- 1.2:1 1.5:1
    Receivable days-75 days 50 days
    payable days-30days 45 days
    inventory turnover-42 day 35 days

    Which of the following statements about Xena is correct?
    A. Xena is suffering from a worsening liquidity position in 20X9
    B. Xena is taking longer to pay suppliers in 20×9
    C. Xena is receiving cash from customers more quickly in 20X9 than in 20X8
    D. Xena’s liquidity and working capital had improved in 20X9
    SIR why is it A? Why not D? The payable is 30 days ..so that means it can pay more quickly..and sir my teacher told us that 2;1 is a higher liquidity ratio..please clear my concept here..

    January 20, 2019 at 10:13 am #502752
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    1.21 : 1 is lower than 1.5 : 1

    2:1 is nothing to do with it

    January 20, 2019 at 10:34 am #502754
    yusra97
    Participant
    • Topics: 66
    • Replies: 61
    • ☆☆

    so here we look at the ratio? the higher the ratio the higher the company will be liquidity

    January 20, 2019 at 3:05 pm #502789
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    Yes a higher ratio means current assets are bigger than current liabilities by a bigger proportion, which means there is higher liquidity.
    Do watch my free lectures on this again.

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Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Capital ratio’ is closed to new replies.

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