Question

A higher the Day Sales Outstanding ratio indicates A Greater firm liquidity because firms receive cash...

A higher the Day Sales Outstanding ratio indicates

A

Greater firm liquidity because firms receive cash in fewer days for their sales
B

Greater firm liquidity because firms receive cash in more days for their sales
C

Less firm liquidity because firms receive cash in fewer days for their sales
D

Less firm liquidity because firms receive cash in more days for their sales
E

None of the above
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Answer #1

Answer:d) Less firm liquidity because firms receive cash in more days for their sales

Days Sales Outstanding=Average receivables/Credit Sales*365

It is a measure of the number of days it takes the firm to receive cash after a credit sale.A lower number indicates higher liquidity and a higher DSO indicates lower liquidity, since it takes more days to collect cash for the credit sales.

Other options explained

Greater firm liquidity because firms receive cash in fewer days for their sales

False.A higher number indicates lower liquidity.

Greater firm liquidity because firms receive cash in more days for their sales

False.A higher number indicates lower liquidity since the firm requires more days to receive cash after sale.

Less firm liquidity because firms receive cash in fewer days for their sales

False.This is because less liquidity implies higher number of days to receive cash.

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