A Firm Tries to Extend Its Disbursement Float in Order

question 68

Multiple Choice

A firm tries to extend its disbursement float in order to reduce its working capital needs. Which of the following is a risk that may be associated with this strategy, if it is taken too far?

• A) may attract a late fee
• B) may be required to pay before delivery for future supplies
• C) may jeopardize the entire relationship with the supplier
• D) all of the above

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Definitions:

Common-Size Statements

Comparative reports in which each item is expressed as a percentage of a base amount without dollar amounts.

Comparative Reports

Financial reports that show side-by-side comparisons of financial data for different periods, helping to identify trends or changes over time.

Vertical Analysis

A financial analysis method that expresses each item in a financial statement as a percentage of a base amount for comparison purposes.

Total Assets

The sum of all assets owned by a company, including cash, inventory, property, and equipment.