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Answer: A higher total asset turnover ratio and a lower current ratio.
When the value of inventory declines below its carrying amount on the balance sheet, the inventory must be written down to its net realizable value. This write-down reduces the carrying amount of inventory, negatively impacting profitability, liquidity, and solvency ratios. However, activity ratios such as total asset turnover will improve because the asset base (denominator) is reduced, while revenue remains unaffected. The current ratio will decrease as current assets (numerator) are reduced, with no change to current liabilities. Thus, the correct answer is **B**.
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All else being equal, a write-down of inventory by a manufacturing company most likely results in:
A
A lower total asset turnover ratio and a lower current ratio.
B
A higher total asset turnover ratio and a lower current ratio.
C
A lower total asset turnover ratio and a higher current ratio.