Bluestone recently held a board meeting during which he said that the company has the capability to build any of its products using a lean manufacturing model that allowed the company to keep inventory levels low. As aninvestor, you have calculated some ratios to analyze thefirm's performance.Bluestone's current ratios and quick ratios for the past 6 years are shown in the tablebelow:

2014

2015

2016

2017

2018

2019

Current ratio

1.2

1.2

1.3

1.3

1.2

1.2

1.5

1.5

1.9

1.9

2.3

2.3

Quick ratio

1.1

1.1

1.3

1.3

1.1

1.1

0.8

0.8

0.5

0.5

0.5

0.5

What do you think of theCEO's claim that thefirm's manufacturing process aloows it to keep inventorieslow? (Hint: Is there a possible warning sign in the relationship between the tworatios?)

(Select all the answers thatapply.)

A.

Since inventory is included in the calculation of the currentratio, but not in the quickratio, the ratios indicate that inventory is increasing and Bluestone is not operating in a lean manufacturing mode.

B.

The current ratio provides a better measure of overall liquidity only when afirm's inventory cannot be easily converted into cash.

C.

As with any analysis usingratios, you should investigate other financial ratios for Bluestone to further assess its financial health.

D.

The current ratio is increasing but the quick ratio is declining.