FSAIII

sairamu217
Posts: 5
Joined: Wed Jan 30, 2013 10:36 am

FSAIII

Postby sairamu217 » Wed Feb 13, 2013 3:26 pm

The current ratio of a firm is 1.5. If the firm decides to pay off 10% of its creditors, how would if impact
the current ratio?
A. Increase
B. Decrease
C. No Impact

peeyushbhatti
Posts: 2
Joined: Tue Feb 12, 2013 3:52 am

FSAIII

Postby peeyushbhatti » Fri Feb 15, 2013 6:19 pm

There will be no impact. Ans is C. CR = CA/ CL 10% reduction in creditors means 10% reduction in CL (Acct Payable reduce by 10%) and also 10% reduction in CA (cash goes out), so numerator and denominator reduce by same amounts and thus no impact will be there.

sairamu217
Posts: 5
Joined: Wed Jan 30, 2013 10:36 am

FSAIII

Postby sairamu217 » Mon Feb 18, 2013 10:19 am

Thanks for your reply. i too thought that in the similar way. But in the slides its mentioned as decreases and some kind of calculation is mentioned. Couldnt understand what that was.!

content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

FSAIII

Postby content.pristine » Tue Feb 19, 2013 10:59 am

Hey Guys!

Okay, in questions like this, take real numbers to help you out. CR=1.5
I will take CA=300 and CL=200.
Now, lets say 10% of the creditors is $5
now CA=295 CL=195 CR =1.51
Hence it INCREASES..
Now, if the CR was <1 the answer changes..

Hope this helps!!


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