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Which of the following would indicate an improvement in a company’s financial position, holding other things...

Which of the following would indicate an improvement in a company’s financial position, holding other things constant? a. The inventory and total assets turnover ratios both decline. b. The total debt to total capital ratio increases. c. The profit margin declines. d. The times-interest-earned ratio declines. e. Days sales outstanding decreases.

Solutions

Expert Solution

Option e is correct option. This is because decrease in days sales outstanding decreases account receivable and hence cash flow increases

Option a is incorrect as reduced inventory turnover increases inventory and reduces cash flow.
Option b is incorrect because increasing debt ratio increases leverage and risk in the firm.
Option c is incorrect as decreasing profit margin indicates decrease in the profitability of the firm.
Option d is incorrect as decline in times interest earned ratio shows increase in probability of default in the company

jeff jeffy answered 2 years ago
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