Question

Which of the following statements is CORRECT?

a. The more conservative a firm's management is, the higher its debt ratio is likely to be.
b. 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.
c. 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.
d. 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.
e. 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.

Answer 1

The answer is C.

Step-by-step explanation:

The days sales accounting(DSO) ratio is represented by:

Average Account Receivable ÷ Average Daily Credit Sales.

DSO connotes how long it takes, on average, to collect after a sale is made or tells us the average number of days it takes credit sales to be turned into cash.

Option B is wrong because it is if a firm's fixed assets turnover ratio is significantly HIGHER and not lower than its industry average.

Option D and E are wrong a high inventory turnover ratio is better than a low ration because this tells us that the company's product is in high demand and there is always insufficient inventories due to the increased in demand