Atletico Inc. is a Spanish logistics company which is considering taking some measures to manage its working capital more effectively. However, due to a recent increase in interest rates, the banks are reluctant to lend money to Atletico's institutional clients, which is the reason why Atletico's inventory is taking longer to sell. In order to speed up the sale of inventory, Atletico has decided to offer longer collection terms to its debtors. Considering the measures that were taken by Atletico, determine if the firm's liquidity position is being weakened by 'drags' or 'pulls' on liquidity. A. These measures signal drags on liquidity. B. These measures signal pulls on liquidity. C. These measures signal both drags and pulls on liquidity.

The correct answer is A.Atletico's liquidity position is weakened by liquidity drags. Liquidity drags include factors such as delayed collection of accounts receivable, bad debts, tight credit terms, and obsolete inventory.

CFA Level 1 Question Of The Week - Corporate Finance (5) - CFA Level 1

Add A Reply

This topic has 1 reply, 1 voice, and was last updated May-197:23 pm by Matt_AnalystPrep.

Author

Posts
- Matt_AnalystPrep
  Participant
  - CFA Charterholder
  26 May 2019 at 7:23 pm
  Up
  4
  ::
  The correct answer is A.
  
  Atletico’s liquidity position is weakened by liquidity drags. Liquidity drags include factors such as delayed collection of accounts receivable, bad debts, tight credit terms, and obsolete inventory.
Author

Posts

Viewing 0 reply threads

You must be logged in to reply to this topic.