Which of the following statements regarding quality of income ratio is NOT true?
A) A quality of income ratio will increase if a company's working capital management allows current assets such as inventory to increase out of control.
B) Variations in the ratio can be seasonal and are the result of sales fluctuations rather than reasons for alarm.
C) The quality of income ratio measures the portion of income that was generated in cash.
D) The quality of income ratio is useful when compared to industry competitors or to prior periods.

Question

Quizplus · Accepted Answer

A quality of income ratio will actually decrease if a company's working capital management allows current assets such as inventory to increase out of control. This is because it indicates that the company is not efficiently using its assets to generate cash flow.

Which of the Following Statements Regarding Quality of Income Ratio