Gharial LLC is a company that manufactures and leases cars. To increase its prod

Question

Gharial LLC is a company that manufactures and leases cars. To increase its production capacity, the CEO of Gharial LLC has decided to build a new manufacturing plant. The company requires a loan from a bank, and submits its financial statements to the bank. The CEO believes that the loan will be approved because of the company’s liquidity.

Which of the following, if true, weakens the CEO’s argument?

?

A majority of Gharial LLC’s current assets are in the form of inventory.

Gharial LLC specializes in high-end cars.

The current ratio of Gharial LLC is higher than one.

The price of Gharial LLC’s shares has remained constant over the past year.

Explanation / Answer

Current assets in form of inventory can keep the company in tight liquidity position. Banks hesitate to deal in such scenarios as the market value of that inventory after seizure is quite minimal.

Hence, answer is Option A: A majority of Gharial LLC’s current assets are in the form of inventory.

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