Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 8 - Reporting and Analyzing Receivables - Questions: 17

Answer

Current ratio is one method which indicates the liquidity of the company. If a current ratio is improved, it will certainly show a better liquidity for the company. However, it needs to be further analyzed to assess the improvement.

Work Step by Step

For this analysis, we can use the - Accounts receivable turnover ratio - Average collection period If these ratios have also improved, this will suggest the improvement of liquidity of the company.
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