Which of the following statements is CORRECT?
A. If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will decrease.
B. A reduction in inventories held would have no effect on the current ratio.
C. An increase in inventories would have no effect on the current ratio.
D. If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase.
E. A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.
Answer: D
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