Which of the following statements is CORRECT?
A) A reduction in inventories will have no effect on the current ratio.
B) An increase in inventories will 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.
E) If a firm increases its sales while holding its inventories constant,then,other things held constant,its fixed assets turnover ratio will decline.

Question

Quizplus · Accepted Answer

If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory, and a higher ratio indicates that the firm is selling its inventory more quickly. Therefore, if sales increase while inventory remains constant, the cost of goods sold will increase, causing the inventory turnover ratio to increase.

Which of the Following Statements Is CORRECT