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Which of the following would improve the financial position of a business? (A) Lower current ratio and lower accounts receivable turnover ratio (B) Higher current ratio and lower accounts receivable turnover ratio (C) Lower current ratio and higher accounts receivable turnover ratio (D) Higher current ratio and higher accounts receivable turnover ratio - HSC - SSCE Business Studies - Question 10 - 2013 - Paper 1
Question 10
Which of the following would improve the financial position of a business? (A) Lower current ratio and lower accounts receivable turnover ratio (B) Higher current ... show full transcript
Worked Solution & Example Answer:Which of the following would improve the financial position of a business? (A) Lower current ratio and lower accounts receivable turnover ratio (B) Higher current ratio and lower accounts receivable turnover ratio (C) Lower current ratio and higher accounts receivable turnover ratio (D) Higher current ratio and higher accounts receivable turnover ratio - HSC - SSCE Business Studies - Question 10 - 2013 - Paper 1
Step 1
Higher current ratio and higher accounts receivable turnover ratio
Answer
To determine which combination improves the financial position of a business, we must consider the implications of the current ratio and accounts receivable turnover ratio.
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Current Ratio: A higher current ratio indicates that a business has more current assets relative to its current liabilities. This suggests better liquidity and a stronger ability to meet short-term obligations, which is generally viewed positively.
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Accounts Receivable Turnover Ratio: A higher accounts receivable turnover ratio indicates that a business is efficient in collecting its receivables. It reflects that the company has a strong cash flow from its credit sales, efficiently converting credit sales into cash.
Thus, option D (Higher current ratio and higher accounts receivable turnover ratio) is the best choice as it signifies enhanced liquidity and efficient operations, contributing to an improved overall financial position.