Liquidity problems with receivables and/or inventory means that the current ratio needs to be much higher than when there are no such liquidity problems.

Question

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Liquidity problems with receivables and/or inventory indicate that a company may have difficulty in generating cash flow in the short-term. This would require a higher current ratio (current assets divided by current liabilities) to ensure that the company can meet its short-term obligations. A higher current ratio indicates that the company has more current assets to cover its current liabilities, making it more likely to be able to pay its bills and debts on time. Therefore, if a company has liquidity problems with receivables and/or inventory, a higher current ratio would be necessary to reflect this.

Liquidity Problems with Receivables And/or Inventory Means That the Current