Capital ratio

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January 20, 2019 at 10:09 am #502748
yusra97
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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
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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
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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
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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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