The following information is available for Orkay Company and Lowes Company, similar firms operating in the same
Question:
Current ratio Acid-test ratio Accounts receivable turnover Merchandise inventory turnover Working capital 2010 1.6 0.9 29.5 23.2 Orkay 2009 1.7 1.0 24.2 20.9 2008 2.0 1.1 28.2 16.1 2010 3.1 2.7 15.4 13.5 Lowes 2009 2.6 2.4 14.2 12.0 2008 1.8 1.5 15.0 11.6 $60,000 $48,000 $42,000 $121,000 $93,000 $68,000
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Lowes has a greater amount of working capital This by itself does not indicate whether the company i...View the full answer
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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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