Which of the following statements is CORRECT?
A)If a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength.
B)If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO) will increase.
C)There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP).These ratios measure entirely different things.
D)A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.
E)If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.

Question

Quizplus · Accepted Answer

If a firm increases its sales while holding its accounts receivable constant, the days' sales outstanding (DSO) will decline because DSO is calculated as (Accounts Receivable / Sales) * Number of Days. Increasing sales while keeping accounts receivable constant reduces the DSO.

Which of the Following Statements Is CORRECT