Which of the following statements is generally considered desirable?
A)A large decrease in the accounts receivable turnover ratio
B)A decrease in the number of days' sales in receivables
C)An increase in sales along with a larger decrease in the gross profit ratio
D)A decrease in the cash flow from operations to current liabilities ratio

Question

Quizplus · Accepted Answer

A decrease in the number of days' sales in receivables means that the company is able to collect its accounts receivable quicker, which improves its cash flow and liquidity. This is generally considered a desirable outcome. A large decrease in the accounts receivable turnover ratio (Option A) could indicate that the company is unable to collect its receivables, while an increase in sales along with a larger decrease in the gross profit ratio (Option C) could indicate that the company is selling products at a lower margin, which may not necessarily be good for profitability. Lastly, a decrease in the cash flow from operations to current liabilities ratio (Option D) would suggest that the company is facing difficulty in generating cash from day-to-day operations, which could be a sign of financial distress.

Which of the Following Statements Is Generally Considered Desirable