Scott Ruskin is the CEO of Decatur Materials. The company has been struggling for the last few years and is in danger of defaulting on several of its bank loan covenants. Scott is facing significant pressure from the board of directors to turn the company around. Unless he meets all of the financial goals for the year, he will be out the door without a golden parachute. To improve the financial appearance of the company, Scott undertakes a scheme to boost the balance sheet by faking inventory. The analysis of what financial ratio would most likely bring this scheme to light?

Question

Quizplus · Accepted Answer

The inventory turnover ratio measures the number of times a company sells and replaces its inventory during a period. If a company were to manipulate its inventory, it could artificially inflate this ratio, which would raise suspicion among investors and auditors. This would in turn lead to further investigation and potentially uncover the fraud. The quick ratio and collection ratio would not necessarily reveal inventory fraud, and the profit margin could be manipulated through other means.

Scott Ruskin Is the CEO of Decatur Materials