Evaluating Liquidity and Payment Reliability for Credit Decisions Steps: - Determine Raj's goal: Assess customer's ability to pay for goods on credit, focusing on short-term solvency and supplier payment patterns. - Review current ratio (1): Measures liquidity by comparing current assets to liabilities, indicating short-term debt coverage. - Review trade payables turnover (3): Calculates days to pay suppliers (cost of sales / payables), showing payment promptness. - Dismiss non-current asset turnover (2): Gauges fixed asset efficiency for long-term operations, not credit risk. - Dismiss trade receivables turnover (4): Tracks collection from customers, indirectly affecting cash but less relevant than payables for supplier risk. Why B is correct: - Current ratio evaluates overall liquidity (current assets / current liabilities), while trade payables turnover assesses payment speed to suppliers (365 / (cost of sales / average payables)), directly informing credit safety. Why the others are wrong: - A: Non-current asset turnover (sales / non-current assets) ignores liquidity and payment focus. - C: Omits current ratio; non-current asset turnover is operational, not credit-related. - D: Lacks liquidity measure; receivables turnover (sales / receivables) …