Multiple Choice
Which one of the following is an example of a borrower in the financial markets?
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1. Introduction to Accounting
Types of Accounting
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Which of the following is NOT an asset utilization ratio?
A
Current Ratio
B
Inventory Turnover Ratio
C
Total Asset Turnover Ratio
D
Receivables Turnover Ratio
Verified step by step guidance1
Step 1: Understand the concept of asset utilization ratios. These ratios measure how efficiently a company uses its assets to generate revenue. Common examples include Inventory Turnover Ratio, Total Asset Turnover Ratio, and Receivables Turnover Ratio.
Step 2: Recognize that the Current Ratio is a liquidity ratio, not an asset utilization ratio. Liquidity ratios assess a company's ability to meet short-term obligations, and the Current Ratio is calculated as \( \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \).
Step 3: Compare the given options to identify which ratios are asset utilization ratios. Inventory Turnover Ratio measures how efficiently inventory is managed, Total Asset Turnover Ratio evaluates overall asset efficiency, and Receivables Turnover Ratio assesses how effectively receivables are collected.
Step 4: Note that the Current Ratio does not measure asset utilization but rather liquidity, making it the correct answer to the question.
Step 5: Conclude that the Current Ratio is NOT an asset utilization ratio, while the other three options are examples of asset utilization ratios.
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