Why would management manipulate liquidity ratios?

Accounting
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Why would management manipulate liquidity ratios?

Dec 1st, 2014

Liquidity ratios are one of most commonly used business ratios that are used by creditors in order to asses the ability of business to generate cash in order to pay its debts. In case liquidity ratio is low that means organization is having difficulty in meeting its short term liabilities/debt. This would hurt organization`s ability to get credit. Therefore management might manipulate liquidity ratio in order to show credit worthyness of organization.  Furthermore it shows  company is in good financial health that may attract the investors.

Its easier to manipulate financial statements especiallay liquidity ratios and it is highly unlickly that this manipulation will be detected by creditors or investors due to relationship of client with indepdentn auditor.


Dec 1st, 2014

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