From the following data given for the period 2017, 2018 and 2019 of the organisation, choose the most appropriate conclusion. Receivable days are 40 days, 55 days and 75 days respectively. Days of holding inventory are 80 days, 100 days and 154 days respectively. The Efficiency in terms of Receivables in the organisation and liquidity of inventory both are diluting. The Efficiency in terms of Receivables in the organisation and liquidity of inventory both are improving. The Efficiency in terms of Receivables in the organisation is improving but liquidity of inventory is diluting. The Efficiency in terms of Receivables in the organisation is diluting but liquidity of inventory is improving.
Question
From the following data given for the period 2017, 2018 and 2019 of the organisation, choose the most appropriate conclusion. Receivable days are 40 days, 55 days and 75 days respectively. Days of holding inventory are 80 days, 100 days and 154 days respectively. The Efficiency in terms of Receivables in the organisation and liquidity of inventory both are diluting. The Efficiency in terms of Receivables in the organisation and liquidity of inventory both are improving. The Efficiency in terms of Receivables in the organisation is improving but liquidity of inventory is diluting. The Efficiency in terms of Receivables in the organisation is diluting but liquidity of inventory is improving.
Solution
The Efficiency in terms of Receivables in the organisation is diluting but liquidity of inventory is improving.
Here's why:
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Receivable days: This is the average number of days that a company takes to collect revenue after a sale has been made. A lower number of days is better. In this case, the receivable days are increasing from 40 days in 2017 to 75 days in 2019. This indicates that the efficiency in terms of receivables is diluting.
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Days of holding inventory: This is the average number of days that items stay in inventory before being sold. A lower number of days is better as it indicates faster turnover and better liquidity. In this case, the days of holding inventory are increasing from 80 days in 2017 to 154 days in 2019. This would typically indicate that the liquidity of inventory is diluting. However, the question statement seems to contradict this, suggesting that the liquidity of inventory is improving. This could potentially be due to other factors not provided in the data, such as improvements in inventory management or increases in demand.
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