Buyer Co has ordered goods on credit from Seller Co. Before Seller ships the goods it would like to be sure that Buyer will be able to pay for them within the normal credit period. Assuming Seller has access to Buyer's financial statements, which of the following ratios will be of the most interest to Seller Co.?

Question

Quizplus · Accepted Answer

The current ratio is a liquidity ratio that measures the ability of a company to pay its short-term liabilities with its short-term assets. This ratio will be of most interest to the seller as it gives an idea of whether the buyer will have enough cash to pay off the debt owed within the normal credit period. If the buyer has a low current ratio, it might indicate that the buyer will struggle to pay the debt off in time, which will increase the risk of extending credit to the buyer.

Buyer Co Has Ordered Goods on Credit from Seller Co