Which of the following statements is CORRECT?
A) if a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease.
B) a reduction in inventories held would have no effect on the current ratio.
C) an increase in inventories would have no effect on the current ratio.
D) if a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.
E) a reduction in the inventory turnover ratio will generally lead to an increase in the roe.

Question

Quizplus · Accepted Answer

The inventory turnover ratio measures how many times a company sells and replaces its inventory during a certain period. A higher inventory turnover ratio indicates that a company is selling its inventory more frequently, which is generally considered a positive sign. Therefore, if a firm increases its sales and cost of goods sold while holding its inventories constant, its inventory turnover ratio will increase, as it is selling its inventory more frequently.

Which of the Following Statements Is CORRECT