Assume a company acquires inventory, using cash. Which of the following statements is correct regarding the effect of this purchase on its ratios?
A) The current ratio will fall.
B) The quick ratio will fall.
C) The inventory turnover ratio increases.
D) The capital structure leverage increases.

Question

Quizplus · Accepted Answer

The quick ratio will fall because it excludes inventory from current assets, so when cash (a quick asset) is used to purchase inventory, the quick ratio decreases.

Assume a Company Acquires Inventory, Using Cash