Which of the following statements is most correct?
A) If a company uses cash to buy inventory, its current ratio will decline.
B) If a company uses some of its cash to pay off short-term debt, then its current ratio will always decline, given the way the ratio is calculated, other things held constant.
C) During a recession, it is reasonable to think that most companies' inventory turnover ratios will change while their fixed asset turnover ratios will remain fairly constant.
D) During a recession, we can be confident that most companies' DSOs (or ACPs) will decline because their sales will probably decline.
E) Each of the statements above is false.

Question

Quizplus · Accepted Answer

None of the statements are universally correct. A) The current ratio remains unchanged when cash is used to buy inventory. B) Paying off short-term debt with cash can increase the current ratio if the ratio is less than 1. C) Both inventory and fixed asset turnover ratios can change during a recession. D) DSOs may increase during a recession as customers take longer to pay.

Which of the Following Statements Is Most Correct