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Which of the following statements is CORRECT?
a. If a security analyst saw that a firm’s days’ sales outstanding (DSO) was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength.
b. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days’ sales outstanding (DSO) will increase.
c. There is no relationship between the days’ sales outstanding (DSO) and the average collection period (ACP). These ratios measure entirely different things.
d. A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.
e. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days’ sales outstanding will decline.

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Tundexi

Answer:

e. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.

Explanation:

Days sales outstanding = Account receivables / Sales * 365

So, as Sales increases which is the denominator, and there is accounts receivable which is constant and is the numerator, then sales days outstanding will decline.

Meaning that, the higher the Sales increases while Account receivable remain constant, the sales days outstanding will continue to decline.

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