medium · Corporate Credit Analysis fsa

All else being equal, which firm is more likely to face a liquidity crisis during a sudden credit market freeze?

1. Peer A, because its faster collection suggests it has no 'buffer' of receivables to collect if new sales stop.
2. Neither, since DSO is purely an efficiency metric and does not itself change the total cash sitting on the balance sheet today.
3. Peer B, but only if its inventory turnover (DIO) is also weaker than the broader industry average for its own particular sector.
4. Peer B, because more of its capital is tied up in uncollected receivables, making it more dependent on external financing.

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