In 20X3, C Co reported a trade payables turnover ratio of 1.85 and a current ratio of 0.66. Their statement of ﬁnancial position shows $2.1 billion in marketable securities not included in their current assets and cash ﬂow from operations. Which of the following interpretations is most likely?
A) Since the two ratios are fairly high, it indicates C Co has little diﬃculty paying its bills in a timely manner.
B) Since both these ratios are low, it might indicate poor liquidity and inability to pay vendors in a timely manner.
C) C Co practices aggressive cash management policies including investing excess cash and using vendors to ﬁnance operations by making slow payment to them.
D) C Co must be carrying a low amount of current liabilities in comparison to its total liabilities.

Question

Quizplus · Accepted Answer

The trade payables turnover ratio of 1.85, which is relatively low, suggests that C Co takes a longer time to pay off its suppliers, indicating the use of vendors to finance operations. The current ratio of 0.66 is also low, indicating potential liquidity issues, but the presence of significant marketable securities not included in current assets suggests an aggressive cash management policy by investing excess cash rather than holding it as liquid assets.

In 20X3, C Co Reported a Trade Payables Turnover Ratio