Question

Receivables growing faster than revenue can indicate a red flag for operational issues including the following:

a. lower credit standards
b. recording fictitious revenue higher credit
c. standards stable revenue growth

Answer 1

Receivables growing faster than revenue usually points to issues like lower credit standards or recording fictitious revenue, not higher credit standards.

Step-by-step explanation:

When receivables are growing faster than revenue, it could indicate several operational issues within a business. One potential issue is the lowering of credit standards, which means that a company is allowing customers with poorer credit to make purchases on credit. This can lead to an increase in sales in the short term but might result in a higher number of receivables that are not collected.

Another issue could be the recording of fictitious revenue, where revenue is reported but not actually realized, which inflates the receivables. Lastly, having higher credit standards typically would not result in receivables growing faster than revenue; instead, this might lead to more stable revenue growth as the company is ensuring that sales are made to customers who are more likely to pay on time.