Question

Which of the following statements is CORRECT?

	a.	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.
	b.	The more conservative a firm's management is, the higher the firm's total debt to total capital ratio is likely to be.
	c.	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.
	d.	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.
	e.	If a firm's fixed assets turnover ratio is significantly lower than the average for its industry, then it could be that the firm uses its fixed assets very efficiently or is operating at over capacity and should probably add fixed assets.

Answer 1

Ans ) d. 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

Reason

Option A is wrong because low inventory turn over indicates that the company is unable to sell it's inventory.

Option B is wrong as conservative management would prefer more equity than debt as debt carries risk of bankrupcy

Option C is as wrong decline in inventory turnover ratio suggests that company is facing difficulties in selling inventories

Option E is wrong as Lower fixed asset turnover suggest that the asset are not bening efficiently used