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In: Finance

What happens to a firms liquidity when the accounts receivable is collected?

What happens to a firms liquidity when the accounts receivable is collected?


When a supplier's bill is paid and net working capital is positive what happens to the current ratio?

Solutions

Expert Solution

First one, when a firm receives the collection, the firm's liquidity will increase. Because firms have more cash in hand to payout the liabilities quickly.

Second one,

When the supplier's bill is paid, the current ratio will increase provided net working capital is positive, let's understand with For example, suppose u have 100000 current assets and 50000 current liabilities which means your current ratio is 2:1. Now you pay the bill of one of the suppliers worth 25000 so the new current asset = 75000

New current liabilities will = 25000

New current ratio = 75000/25000 = 3:1

jeff jeffy answered 2 years ago
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