medium · Corporate Credit Analysis
An analyst is comparing two industrial peers. Peer A has a DSO of 30 days and Peer B has a DSO of 60 days.
All else being equal, which firm is more likely to face a liquidity crisis during a sudden credit market freeze?
- Peer A, because its faster collection suggests it has no 'buffer' of receivables to collect if new sales stop.
- Neither, as DSO is an efficiency metric and does not impact the total amount of cash available on the balance sheet.
- Peer B, but only if its inventory turnover (DIO) is also higher than the industry average.
- Peer B, because more of its capital is tied up in uncollected receivables, making it more dependent on external financing.
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