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

Question

Quizplus · Accepted Answer

Inventories are the goods that a company produces or purchases to sell to customers. The inventory turnover ratio measures how efficiently a company is selling its inventory by comparing its sales to the amount of inventory it holds. Therefore, if a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.

Which of the Following Statements Best Describes Inventories