A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover than the industry averages. You should not be surprised to find that this firm has:
I. Lower ATO than the industry average
II. Lower ROA than the industry average
III. Lower ROE than the industry average
A) I only
B) I and II only
C) II and III only
D) I, II, and III

Question

Quizplus · Accepted Answer

Lower inventory turnover indicates that the firm is holding onto inventory longer than the average, which can lead to higher carrying costs and potentially lower profitability. A longer ACP (accounts payable period) means the firm is taking longer to pay its suppliers, which may indicate that the firm is having difficulty obtaining credit or managing its cash flow. A lower fixed-asset turnover suggests that the firm may be using its assets less efficiently than the industry average. All of these factors combined suggest that the firm is likely to have lower ATO, ROA, and ROE than the industry average.

A Firm Has a Lower Inventory Turnover, a Longer ACP