If XYZ Ltd. incurs (with purchase and installation of machinery) using cash, which of the following ratios will remain unchanged, if all other things remain constant?

Question

Quizplus · Accepted Answer

The purchase and installation of machinery using cash would decrease the amount of cash on hand, which would decrease both the current ratio and quick ratio. The asset turnover ratio, however, is calculated by dividing the revenue generated by the total assets of the company, and the purchase of machinery would increase the company's total assets. Therefore, the asset turnover ratio would be affected by the purchase of machinery and would not remain unchanged. Only the current ratio would remain unchanged.