Asked by Ashlyn Albert on Jun 14, 2024
Verified
An increase in the average collection period may suggest all of the following except:
A) easing of credit terms.
B) customers are not paying their bills on time.
C) sales have decreased.
D) firm could have a liquidity problem in the future.
Average Collection Period
The average number of days it takes for a company to receive payments owed by its customers, reflecting the efficiency of its credit and collection policies.
Liquidity Problem
A liquidity problem occurs when an individual or organization struggles to convert assets into cash quickly without significant losses in value, potentially affecting their ability to meet immediate financial obligations.
Credit Terms
Conditions under which credit is extended by a lender to a borrower, including repayment schedule, interest rate, and the timeframe of the loan.
- Interpret a range of financial ratios and deduce their impact.
Verified Answer
ZK
Zybrea KnightJun 14, 2024
Final Answer :
C
Explanation :
An increase in the average collection period is associated with a delay in receiving payments from customers, which could be due to issues such as easing of credit terms, customers not paying their bills on time, or a liquidity problem in the future. The increase in the average collection period does not necessarily suggest a decrease in sales, as the sales volume could remain constant while the payment cycle is extended.
Learning Objectives
- Interpret a range of financial ratios and deduce their impact.