Question

Pine Co has the following ratios for 2018 and 2017:

	2018	2017
Current ratio	0.9 : 1	1.3 : 1
Trade receivable days	74 days	51 days
Trade payable days	31 days	45 days
Inventory days	42 days	37 days

Which of the following is true?

Group of answer choices

Pine Co is suffering from a worsening liquidity position in 2018

Pine Co's liquidity and working capital have improved in 2018

Pine Co is receiving cash from customers more quickly in 2018 than in 2017

Pine Co is taking longer to pay suppliers in 2018 than in 2017

Provide your answer within 45 minutes maximum please!

Answer 1

OPTION A------ Pine Co is suffering from a worsening liquidity position in 2018

Liquidity position is reflected by Current ratio. Current Ratio is defined as comparison of firm's current assets to it's current liabilities. Higher the current ratio better the liquidity of company. In 2018, current ratio has declined from 1.3 to 0.9 . Hence Pine co is suffering from a worsening liquidity position in 2018

Other options are wrong

Option B----- liquidity has worsened

Option C-----trade receivable days are more in 2018 than 2017 which implies it takes more time to collect cash from customers.

Option D------ trade payable days are less in 2018 than 2017 which implies that Pine co pay their suppliers earlier.