Which of the Following Statements Is Most Correct

question 24

Multiple Choice

Which of the following statements is most correct?

• A) If a company uses cash to buy inventory, its current ratio will decline.
• B) If a company uses some of its cash to pay off short-term debt, then its current ratio will always decline, given the way the ratio is calculated, other things held constant.
• C) During a recession, it is reasonable to think that most companies' inventory turnover ratios will change while their fixed asset turnover ratios will remain fairly constant.
• D) During a recession, we can be confident that most companies' DSOs (or ACPs) will decline because their sales will probably decline.
• E) Each of the statements above is false.

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Definitions:

Economic Profit

Profit calculated by subtracting both explicit and implicit costs from total revenues, indicating the efficiency beyond the breakeven point.

Capital-Intensive

Describing industries or processes that require a high level of capital investment in machinery and equipment relative to labor.

Labor-Intensive

A process or industry that requires a high input of labor relative to capital in the production of goods or services.

Labor Costs

The total expenses incurred by employing labor including wages, salaries, benefits, and taxes, which are key components of the overall cost of production.