ACCA Applied Knowledge · Financial Accounting · Importance and purpose of analysis of financial statements
A supplier is deciding whether to continue offering 60 days' credit to Rialto Co. Which ratio would be most relevant to the supplier's decision?
The current ratio is most relevant because a supplier granting credit wants to know whether the customer can pay its short-term obligations when due. Return on capital employed, dividend cover and earnings per share mainly serve investors assessing profitability and returns.
- AReturn on capital employed
- BDividend cover
- CCurrent ratioCorrect
- DEarnings per share
Explanation
A trade supplier is concerned with short-term liquidity, meaning whether it will be paid on time. The current ratio measures the ability to meet current liabilities from current assets. ROCE, dividend cover and EPS are mainly investor measures of profitability and returns.
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