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Ms. Mary Brown is a credit rating analyst. She had prepared a detailed report on one of her client, FlyHigh
Airlines Ltd, a company operating chartered aircrafts in Indi
a. As she was heading for a meeting with her superior on the matter, coffee spilled over her set of prepared paper(s). As she was getting late for meeting, instead of preparing entire set she could recollect few numbers from her memory and reconstructed following partial financial table:
An analyst comparing two competitors Comp Systems and Big Tables gathers the data below:
Cash Conversions Cycle:
Comp Systems: 18 days and Big Tables 32 days
Defense Interval Ratio:
Comp Systems: 50 and Big Tables: 20
What can the analyst conclude regarding the liquidity of these companies?
Suggested Answer: C
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12 comments · newest first
IS
Isidra
2 months ago
I lean towards C. The results seem contradictory to me.
GI
Giovanna
3 months ago
I feel like D makes sense too. Different indicators, different insights.
SA
Salena
3 months ago
I think A is correct. Comp Systems is definitely more liquid.
KR
Kristian
3 months ago
Definitely A, those numbers are pretty clear-cut!
JO
Joni
3 months ago
I think option D makes the most sense, both have their strengths.
NA
Nan
3 months ago
Wait, but does the defense ratio really mean better cash management?
GR
Gretchen
3 months ago
Totally agree, Comp Systems looks way more liquid.
JA
Jamal
4 months ago
Comp Systems has a better cash conversion cycle for sure!
KR
Kristal
4 months ago
I feel like I might be mixing things up, but I think the defense interval ratio being lower for Big Tables means they manage cash better? So maybe option D is correct?
SO
Sol
4 months ago
This question reminds me of a practice question where we analyzed liquidity ratios. I think option A makes sense because Comp Systems has a better cash conversion cycle.
MY
Myong
4 months ago
I’m not entirely sure, but I think the defense interval ratio might show how well a company can cover its liabilities. It’s confusing how they both suggest different things.
CH
Chun
4 months ago
I remember studying the cash conversion cycle and how a shorter cycle typically indicates better liquidity. So, I think Comp Systems is likely more liquid.