CFA Practice Question

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CFA Practice Question

An inventory write-down has a positive effect on ______.

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
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