Footpedal Enterprises has been in business for five years. This past year was the best year yet,
Question:
Your new assistant wonders why upper management is so happy that the inventory turnover, the accounts receivable turnover, the gross profit margin, and the operating profit margin all increased this year. Explain why an increase in each of these items is a positiveindicator.
200443 54 21 2005 45 226 11 2003 5 53 4.3 5.4 2001 Inventory turnover Accounts receivable turnover Gross profit margin Operating profit margin 5.2 6.0 23.2 12.1 5.7 22.8 12.0 2002 5.4 11.8 22.9 11.9 11.9
Step by Step Answer:
Inventory turnover Cost of goods sold Inventory An increased inventory turnover means that either co...View the full answer
Financial Accounting Information For Decisions
ISBN: 978-0324672701
6th Edition
Authors: Robert w Ingram, Thomas L Albright
Related Video
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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