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Chartered Financial Analyst Level 1

Chartered Financial Analyst Level 1

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Which of the following represents a pull on a company's liquidity?

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Explanation:

Explanation:

  • Option A (Obsolete inventory): Incorrect. Obsolete inventory is a drag on liquidity, not a pull. It indicates unused inventory that may no longer be usable, which ties up capital without generating cash flow.

  • Option B (Reduced credit limits): Correct. Reduced credit limits are a pull on liquidity. This occurs when suppliers restrict the amount of credit available to a company, often due to late payments, forcing the company to pay out funds before receiving sales proceeds.

  • Option C (Uncollected receivables): Incorrect. Uncollected receivables are a drag on liquidity, as they represent funds tied up in outstanding invoices that may not be collected, increasing bad debt expenses and reducing available cash.

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