medium · Corporate Credit Analysis
An analyst observes a firm with a 'Sloan Ratio' exceeding 10%.
What does this indicate regarding the firm's working capital and credit risk?
- The firm is highly efficient at converting inventory into cash flow.
- Working capital is a significant source of cash for the business.
- The firm has substantial tangible asset coverage for its debt.
- Accruals are high relative to assets, suggesting lower-quality earnings and higher downgrade risk.
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