- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 6. Analysis of Inventories
- Subject 1. Inventory Valuation
CFA Practice Question
An inventory write-down has a positive effect on ______.
B. profitability ratios
C. activity ratios
A. liquidity ratios
B. profitability ratios
C. activity ratios
Correct Answer: C
Activity ratios such as inventory turnover will be positively affected because the asset base (denominator) is reduced.
User Contributed Comments 3
| User | Comment |
|---|---|
| johntan1979 | That's why this topic is tested in the CFA exam. Very important to see how easily companies can manipulate activity ratios just by writing down inventory. If a company keep writing down inventory, something is not right. Therefore, don't just look at high inventory turnover as a good sign. |
| Rachelle3 | Thanks again johntan1979 |
| fredpat01 | thank you for giving the insight Johntan1979 |