An entity has a current ratio of 1.75. It has decided in future to pay its trade payables after 40 days, rather than after 30 days as it has in the past. What will be the effect of this change on the entity’s current ratio and its cash operating cycle?
Current ratio
Working capital cycle
(A)
Increase
Increase
(B)
Increase
Decrease
(C)
Decrease
Increase
(D)
Decrease
Decrease
Which of the following is most likely to reduce a firm’s working capital?
(A) Paying payables early
(B) Lengthening the period of credit given to receivables
(C) Repaying an overdraft out of cash
(D) Giving a discount to a customer for immediate cash settlement
An entity has a current ratio of 1.5:1. It decides to use surplus cash balances to settle 30% of its total current liabilities. The current ratio will
(A) decrease by more than 30%
(B) decrease by less than 30%
(C) increase by more than 30%
(D) increase by less than 30%