Question

In the table below the information for four companies is provided. Company Accounts Receivable turnover Alpha 14.0 Beta 16.5 Gamma 9.5 Delta 11.5 Industry Average 13.0 Assuming all four companies are in the same industry, which company appears to have the lowest likelihood of paying its current obligations?

Answer 1

Gamma appears to have the lowest likelihood of paying its current obligations.

Step-by-step explanation:

In order to determine which company appears to have the lowest likelihood of paying its current obligations, we need to compare the accounts receivable turnover ratios for the four companies with the industry average. The accounts receivable turnover ratio measures how effectively a company collects payments from its customers. A higher ratio indicates a shorter time period for collecting payments, which is generally better.

Comparing the given accounts receivable turnover ratios:

• Alpha: 14.0
• Beta: 16.5
• Gamma: 9.5
• Delta: 11.5

Based on these ratios, we can see that Gamma with a turnover ratio of 9.5 has the lowest likelihood of paying its current obligations among the four companies.