CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

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

I. liquidity ratios
II. profitability ratios
III. activity ratios
IV. solvency ratios
A. I, II and III
B. I, II and IV
C. All of them
Explanation: An inventory write-down will positively affect activity ratios such as inventory turnover because the asset base (denominator) is reduced. However, all other ratios will be negatively affected, as both the profit and the carrying amount of inventory are reduced.

User Contributed Comments 2

User Comment
Mariana80 what about profitability? wouldn't it appear more profitable if it generates the same sales with less assets?
enetis i think its b/c net income will be lower due to the writedown and therefore any profitability ratio will be lower
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