Which of the following statements is CORRECT?
A)A reduction in inventories would have no effect on the current ratio.
B)An increase in inventories would have no effect on the current ratio.
C)If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.
D)A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.
E)If a firm increases its sales while holding its inventories constant, then, other things held constant, its fixed assets turnover ratio will decline.

Question

Quizplus · Accepted Answer

If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. This is because the numerator (sales) remains constant while the denominator (inventories) decreases, resulting in a higher ratio. The other statements are false.

Which of the Following Statements Is CORRECT