Which of the Following Statements Is CORRECT

question 15

Multiple Choice

Which of the following statements is CORRECT?

• A)A decline in a firm's inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position, i.e., that it is becoming more liquid.
• B)In general, it's better to have a low inventory turnover ratio than a high one, as a low one indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock.
• C)If a firm's fixed assets turnover ratio is significantly lower than its industry average, this could indicate that it uses its fixed assets very efficiently or is operating at over capacity and should probably add fixed assets.
• D)The more conservative a firm's management is, the higher its total debt to total capital ratio is likely to be.
• E)The days sales outstanding ratio tells us how long it takes, on average, to collect after a sale is made. The DSO can be compared with the firm's credit terms to get an idea of whether customers are paying on time.

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Definitions:

Treasury Stock

Stocks that the issuing entity initially distributed and then bought back, decreasing the number of shares available for trade on the open market.

Par Value

The face or nominal value of a bond, stock share, or coupon as specified on a certificate or instrument.

Stock Dividend

A payment made by a corporation to its shareholders in the form of additional shares, rather than cash, reflecting the company's intention to reinvest profits.

Retained Earnings

Profits that a company keeps or reinvests for expansion or debt payment, rather than distributing to shareholders as dividends.