Under what circumstances might the inventory turnover ratio be too highthat is, what possible negative consequences might
Question:
Under what circumstances might the inventory turnover ratio be too high—that is, what possible negative consequences might occur?
Step by Step Answer:
If the inventory turnover ratio is too high it could indicate that the comp...View the full answer
Accounting Tools for business decision making
ISBN: 978-0470095461
4th Edition
Authors: kimmel, weygandt, kieso
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Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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