Questions on write-downs
The following is a question on the Schweser QBank:
“The most likely effect of a write-down of inventory to net realizable value on a firm’s quick ratio is?”
The correct answer is “no change”.
Wouldn’t an inventory write-down lead to a decrease in EBIT through higher COGS? Therefore, leading to a reduction in taxes paid by (write-down)(1 - tax rate). Wouldn’t this increase cash and the numerator of the current ratio?
Study together. Pass together.
Join the world's largest online community of CFA, CAIA and FRM candidates.