Good Student
Posts: 25
Joined: Fri Mar 11, 2016 11:38 am


Postby pooja923 » Fri May 13, 2016 8:17 pm

If a company chooses to write down inventory, which ratio is most likely to improve?
    1. Debt-to-equity ratio.
    2. Operating profit margin.
    3. Total asset turnover.

Correct option is Total asset turnover ratio. Why not Debt-to-equity? Equity (denominator) will be lower so, Debt-to-equity shall be higher or improve.


Finance Junkie
Posts: 704
Joined: Wed Apr 09, 2014 6:28 am


Postby edupristine » Sat May 14, 2016 12:34 pm

Hi Pooja

The correct answer is C.
As the tern over ratio should improve as the numerator either would not be affected (sales) or increase while denominator would be lower.
Probability ratio and debt to equity ratio be worse due to lower profits on account of inventory write-down.

Return to “CFA Level I”



Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.