Financial Reporting and Analysis Q205
0. An analyst gathered the following data for two companies in the same industry:
| Company A | Company B | |
| Days in sales outstanding | 24 | 30 |
| Days of inventory on hand | 25 | 31 |
| Days of payables | 44 | 40 |
| Current assets | $182,000 | $189,000 |
| Total assets | $401,000 | $569,000 |
| Current liabilities | $60,000 | $66,000 |
| Total liabilities | $329,000 | $450,000 |
| Shareholders' equity | $132,000 | $121,000 |
Which of the following is the most appropriate conclusion the analyst can make? Compared to Company B, Company A:
- Option : C
- Explanation : Company A has a higher current ratio and shorter cash conversion cycle and it is therefore more liquid. The lower financial leverage ratio indicates that it has less financial risk, not more, and it has less time between cash outlay and cash collection.
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