Question

A low cash realization ratio may reveal liquidity problems in a profitable company. True False

A low cash realization ratio may reveal liquidity problems in a profitable company.

True

False

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Homework Answers

Answer #1

The correct answer is True

Explanation

Cash realization ratio is calcualted by dividing the cash flow from operatinf activities by net income.

A low cash realization may reveal the upcoming financial difficulties in the near future of a company. Due to low cash realization ratio, the company may not be able to pay its vendors and suppliers on time and will effect credibility of the company due to which the stakehakeholder's of the company will not like the company and will affect goodwill of the company.

So the statement is true that even a profitable company may reveal liquidity problems.

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