Which of the following statements is CORRECT?
A) If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease.
B) A reduction in inventories held would have no effect on the current ratio.
C) An increase in inventories would have no effect on the current ratio.
D) If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.
E) A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.

Question

Quizplus · Accepted Answer

The inventory turnover ratio measures how efficiently a company manages its inventory by dividing the cost of goods sold by the average inventory held during the period. If a firm increases its sales and cost of goods sold while holding its inventories constant, the inventory turnover ratio will increase as it is selling more goods with the same inventory, making it more efficient.

Which of the Following Statements Is CORRECT