Which of the following statements is most correct?
A) Using cash to purchase inventories will increase a company's quick ratio and reduce its current ratio.
B) Using cash to purchase inventories will reduce a company's quick ratio and increase its current ratio.
C) If a company's total assets turnover ratio exceeds the industry average, and yet its fixed assets turnover ratio is below the industry average, this suggests that the company has excessive current assets (more than the industry average).
D) Answers b and c are correct.
E) None of the answers above is correct.

Question

Quizplus · Accepted Answer

Using cash to purchase inventories will decrease the quick ratio (as inventories are not included in quick assets) and will not affect the current ratio (as both cash and inventories are current assets). If a company's total assets turnover is high but fixed assets turnover is low, it suggests efficient use of current assets, not excessive current assets.

Which of the Following Statements Is Most Correct