Question

Based on the following financial information, which best describes the company's liquidity and quality of its current assets over the past three years? 20Y1 20Υ2 20Υ3 Current ratio 2.7 2.4 1.9 Quick ratio 1.1 0.9 0.7 Working capital (000s) $3,332 $3,346 3,120 Accounts receivable days on hand 35 44 42 Inventory days on hand 87 93 96 OThe company's liquidity is quite strong. The fact that the quick ratio remains near 1.0 indicates that it can cover nearly all its current liabilities with cash and accounts receivable. Regarding asset quality, there are 7 more days of receivables than there were 2 years ago, thus giving added strength to the quality of that asset which reinforces liquidity. OWhile the declining trend in both the current and quick ratios might be cause for concern, the fact that the current ratio remains very close to 2.0 is ample documentation of the company's strong liquidity. This analysis is supported by the consistent strength of asset quality as borne out by INVDOH remaining virtually unchanged from 2 years ago and the addition of about 7 days to accounts receivable days on hand. Both the current and quick ratios declined in each year, suggesting that liquidity has deteriorated, however, asset quality has improved due to the increase in accounts receivable and inventory days on hand OThe company's current and quick ratios and its working capital are all declining, which indicates that liquidity is deteriorating. As far as asset quality is concerned, inventory days on hand and accounts receivable days on hand have both slowed over the three year period, raising

Answer 1

The company's current and quick ratios and its working capital are all declining, which indicates that liquidity is deteriorating.