The Mystery Book Nook is a new shop in a busy suburban mall. Which of

QUESTION

The Mystery Book Nook is a new shop in a busy suburban mall. Which of the following will contribute to a healthy activity ratio for it?

A) having a high owners’ equity
B) keeping enough cash on hand
C) having high net sales revenues
D) having enough liquidatable assets
E) maintaining a small inventory

ANSWER

Answer: E
Explanation: E) Maintaining a small inventory contributes to a high activity ratio because the value of inventory appears in the denominator of the activity ratio; if the cost of goods sold is high, it indicates high efficiency in sales turnover.