Business Studies Question (1 Viewer)

[DanJohnson]

Hey all.

I didn't want to post this question in the business studies section as nobody ever posts there and was wondering if somebody could help me with something.

I have to recommend ways in which a business can stay liquid and wrote a one page response on how factoring could do this.

However, as you people doing business studies should know, when measuring liquidity, the ratio includes current assets which also includes accounts receivable within that.

So my question is; can I get away with using factoring as a way of increasing current assets? Even though accounts receivable is already included within current assets and if anything would actually decrease the amount of current assets?

I know I basically just answered the question and can already see the responses, but I had a student in my class who did exactly this, even showing the teacher who fully approved (I didn't think he even realised).

I'm just mainly pissed about the fact that an excellent response is going to waste.

daz aul.

 

[isenseven]

Good question! was wondering the same thing in class yesterday. Anyway i asked my teacher he said no as the sales of accounts recievable would still go into cash at bank. If your looking for a way to increase the current ratio i would suggest getting the business to attain more equity finance and reducing short term debt finance. I'm probably completely wrong, Just my two cents.

 

[DanJohnson]

Good question! was wondering the same thing in class yesterday. Anyway i asked my teacher he said no as the sales of accounts recievable would still go into cash at bank. If your looking for a way to increase the current ratio i would suggest getting the business to attain more equity finance and reducing short term debt finance. I'm probably completely wrong, Just my two cents.

Completely true. I hate the fact that accounts receivable are current assets. :/

Anyways I chose debentures as a way to increase current assets and thinks it works well so I'll be sticking with that.

Thanks for your response!