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Chapter 3: 10DQ (page 182)

Since the mid-1960s, corporate liquidity has been declining. What reasons can you give for this trend?

Short Answer

Expert verified

Corporate liquidity has been declining since the mid-1960s because the organizations are efficiently managing their resources, selling accounts receivables, and increasing liquidity risk due to finance available at low rates.

Step by step solution

01

Meaning of corporate liquidity

Corporate liquidity refers to the ability of a company to fulfill its working capital requirements. The liquidity is used to determine the efficiency of the management for utilizing its current assets and liabilities.

02

The reason for the decline in corporate liquidity

The corporate liquidity has declined since the mid-1960sisasfollows:

  1. The organizations are efficiently managing the inventory by using methods such as just-in-time inventory and point of sales terminals.
  2. The organization can easily sell its receivables by using securitization of assets.
  3. The organizations are willing to increase their liquidity risk when the interest rates decrease.

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