Question

A firm reports a Current Ratio of 2.5x, but its Quick Ratio (Acid-Test Ratio) is only 0.4x. Which of the following conclusions is most valid regarding the firm's short-term liquidity position?

A The firm is exceptionally liquid because its current assets exceed current liabilities by 150%.
B The firm relies heavily on slow-moving inventory or prepaid expenses to meet its short-term obligations.
C The firm’s cash conversion cycle is negative, indicating superior trade credit terms.
D The firm has no accounts receivable on its balance sheet.
E The firm has a high proportion of cash and marketable securities relative to total liabilities
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