Which of the following statements is correct?
A)If a firm has a very high fixed asset turnover, it means that the firm may be nearing its maximum production capacity.
B)An extremely low average collection period will maximize net income.
C)In general, a firm should strive for a high average payment period because it wants to pay for its purchases as quickly as possible.
D)All of these statements are correct.

Question

Quizplus · Accepted Answer

A high fixed asset turnover ratio indicates that the firm is generating a high amount of revenue relative to its fixed assets, but it does not necessarily mean that the firm has reached its maximum production capacity. It could also imply that the firm is using its assets efficiently. B is incorrect as an extremely low average collection period may indicate that the firm is not extending credit to customers, which could negatively impact sales. C is also incorrect as a high average payment period implies that the company is taking a long time to pay its suppliers, which could harm the firm's credit rating and relationships with suppliers.

Which of the Following Statements Is Correct