CFA Level I · CFA Level I Exam · Analyzing Balance Sheets
In a common-size analysis, a company's inventory rises from 18% to 30% of total assets while cash falls from 15% to 6% of total assets. This shift most likely indicates that the company's:
The shift most likely indicates weaker liquidity. Cash, the most liquid asset, fell from 15% to 6% of total assets while inventory, which is slower to convert to cash, rose from 18% to 30%. The data say nothing about solvency or receivables collection.
- Aliquidity has weakenedCorrect
- Bsolvency has strengthened
- Creceivables collection has improved
Explanation
A larger share of assets in less liquid inventory and a smaller share in cash lowers liquidity. Nothing in the data shows a change in the debt mix, so solvency is not shown to strengthen. Receivables are not described.
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