CFA CFA Level 1 CFA Level 1 Question of the Week – Corporate Finance

CFA Level 1 Question of the Week – Corporate Finance

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    • Matt_AnalystPrep
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      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.
    • Matt_AnalystPrep
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      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. 

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