liquidity

CFA Level I
#1

Which of the following is least likely an indicator of a firm’s liquidity? A) Cash as a percentage of sales. B) Inventory turnover. C) Quick ratio. D) Amount of credit sales any thought?

#2

d

#3

Credit sales. A company could have a ton of credit sales, but also a ton of cash sales, and as such would be very liquid. The opposite could also be true. Just knowing the volume of credit sales, doesn’t tell us anything.

#4

D also credit sales is not part of any liquidity ratio.

#5

thanks for the thoughtful answers

#6

I have another quick question. how come does inventory turnover have thing to do with liquidity?

#7

You could have all your sales on credit and thus have low liquidity.

#8

JayJeon Wrote: ------------------------------------------------------- > I have another quick question. how come does > inventory turnover have thing to do with > liquidity? If you can turn your inventory quick enough, then you can generate cash from your inventory to help during tough times

#9

tsttse Wrote: ------------------------------------------------------- > You could have all your sales on credit and thus > have low liquidity. Yes, but if you are only given a dollar amount (ie. $50mil in sales on credit) then the figure is pretty much useless. Ratios and percentages are much more useful