Question

Balotti S.A. revenue decreased from $250,000 to $220,000. The firm's current assets did not change constant....

Balotti S.A. revenue decreased from $250,000 to $220,000. The firm's current assets did not change constant. Given this information, which one of the following statements must be true?

  

The collection period decreased.

   

The total asset turnover rate increased.

   

The fixed asset turnover decreased.

   

The days' sales in receivables decreased.

   

The inventory turnover rate increased.

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Answer #1

As the revenue is decreased and current asset is same, therefore the inventory turnover ratio won't be affected by this as the formula do not consist any of them.

Also if the revenue is decreased then the total assets turnover rate will also decrease as the formula is Net sales divided by average total assets. Also fixed asset turnover ratio cannot be judged due to no information related to Change in fixed asset.

The days sales in receivable ratio will increase as the formula is average account receivable divided by net sales , so if the sales is decreased then the ratio will increase. But the collection period will decrease as the formula is 365 divided by days sales in receivable ratio, so if the days sale ratio will increase then the collection period will decrease.

Therefore the correct option is 1st.

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