U2 Ltd is considering whether to offer trade credit to A1 Ltd. The ratio from A1's accounts that will be most useful in assessing the firm's ability to repay its trade debts on time is the:
A)gearing.
B)asset turnover period.
C)interest cover.
D)average settlement period for accounts payable.

Question

Quizplus · Accepted Answer

The average settlement period for accounts payable will provide information on how quickly A1 Ltd pays its invoices to its suppliers. This will help U2 Ltd assess A1's ability to repay its trade debts on time. A shorter settlement period suggests better liquidity and management of cash flow, which is important for a company's ability to meet its financial obligations.

U2 Ltd Is Considering Whether to Offer Trade Credit to A1