- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
Viewing 2 posts - 1 through 2 (of 2 total)
- Posts
A company has a liquidity ratio equal to 0.5. The directors believe that the company has to reduce its bank overdraft and have agreed to alter the company’s credit terms to customers from two months to one month.
What would be the effects on the company’s liquidity ratio if this change were to be achieved?
Liquidity ratio
A Decrease
B No Change
C Increase
D IncreaseFirstly there is no ratio called the ‘liquidity ratio’.
They must mean the current ratio (which is a measure of liquidity).Since the current ratio = current assets / current liabilities, if receivables and overdraft are both reduced by the same amount, the current ratio will increase.
Viewing 2 posts - 1 through 2 (of 2 total)
- You must be logged in to reply to this topic.