Which of the following statements is most correct? If a company lowers its DSO,but no changes occur in sales or operating costs,then
A) the company might well end up with a higher debt ratio.
B) the company might well end up with a lower debt ratio.
C) the company would probably end up with a higher ROE.
D) the company's total asset turnover ratio would probably decline.
E) none of the above is a correct statement.

Question

Quizplus · Accepted Answer

Lowering DSO means the company is collecting its accounts receivables faster, which increases its cash flow. This, in turn, can allow the company to pay off debt, resulting in a lower debt ratio. However, there is no direct impact on ROE, and the total asset turnover ratio is not related to DSO. Therefore, option B is the most correct statement.

Which of the Following Statements Is Most Correct? If a Company