The correct answer is: B. Increases the current ratio.
The current ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations. It is calculated by dividing current assets by current liabilities.
When a company collects its receivables, it increases its current assets. This, in turn, increases the current ratio.
A higher current ratio indicates that a company has more liquid assets to cover its short-term obligations. This is generally considered to be a positive sign for a company’s financial health.
However, it is important to note that the current ratio is only one measure of a company’s liquidity. Other factors, such as the composition of a company’s current assets and liabilities, should also be considered when assessing a company’s financial health.
Here is a brief explanation of each option:
- Option A: Decreases the current ratio. This is incorrect because collecting receivables increases current assets, which in turn increases the current ratio.
- Option B: Increases the current ratio. This is the correct answer.
- Option C: Does not affect the current ratio. This is incorrect because collecting receivables does affect the current ratio.
- Option D: None of the above. This is incorrect because option B is the correct answer.