Which of the following statements is CORRECT? a. If a firm has high current and

Question

Which of the following statements is CORRECT?

a. If a firm has high current and quick ratios, this always indicate that the firm is managing its liquidity position well. b. The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its current assets. c. If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline. d. If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change. e. If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would decline.

Explanation / Answer

Answer is b:- The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its current assets.

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