Which of the Following Statements Is CORRECT

question 23

Multiple Choice

Which of the following statements is CORRECT?

• A)If a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry average, and was increasing and trending still higher, this would be interpreted as a sign of strength.
• B)A high average DSO indicates that none of its customers are paying on time. In addition, it makes no sense to evaluate the firm's DSO with the firm's credit terms.
• C)There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP). These ratios measure entirely different things.
• D)A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.
• E)If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.

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Definitions:

Net Income

The amount of money a company ultimately earns once it subtracts expenses and taxes from its gross revenue.

Interest Expense

Interest expense is the cost incurred by an entity for borrowed funds.

Carrying Value

The recorded cost of an asset in a company's books, less any accumulated depreciation or amortization.

Face Value

The nominal value printed on a financial instrument, such as a bond or stock certificate, representing its worth as stated by the issuer.