Which of the following statements regarding the effects of a business decision on a financial ratio is true?
A) If a company is expanding its facilities, its fixed asset turnover ratio is likely to fall temporarily.
B) If a company extends its payment period for customers, its quality of income ratio is likely to rise.
C) If a company eases its credit granting policies, the accounts receivable turnover is likely to rise.
D) If a company builds up inventories, its days to sell ratio is likely to fall.

Question

Quizplus · Accepted Answer

Fixed asset turnover is calculated by dividing net sales by the company's average fixed assets. When a company expands its facilities, it will likely incur additional fixed assets, which will temporarily lower the fixed asset turnover ratio.

Which of the Following Statements Regarding the Effects of a Business