A company has a liquidity ratio equal to 0.5. The directors believe that the company has to reduce its bank overdraft and have agreed to alter the company’s credit terms to customers from two months to one month.
What would be the effect on the company’s liquidity ratio if this change were to be achieved?
The liquidity ratio would decrease.
The liquidity ratio would not change.
The liquidity ratio would increase.
The liquidity ratio would increase initially but decrease after one month.
Could anyone help with this question?
