- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 25. Inventories
- Subject 5. Measurement of Inventory Value

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**CFA Practice Question**

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

II. profitability ratios

III. activity ratios

IV. solvency ratios

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.

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**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 |