Connors LLC has been operating for three years as a lumber producer specializing in pine, aspen, and hardwoods. During this period, it has experienced rapid growth in sales revenue and in inventory. Mr. Connors and his associates have hired you as Connors’s first corporate controller. You have put into place new purchasing and manufacturing procedures that are expected to reduce inventories by approximately one-third by year-end. You have gathered the following data related to the changes:

Required:
1. Compute the inventory turnover ratio based on two different assumptions:
a. Those presented in the preceding table (a decrease in the balance in inventory).
b. No change from the beginning-of-the-year inventory balance.
2. Compute the effect of the projected change in the inventory balance on cash flow from operating activities for the year (indicate the sign and amount of effect).
3. On the basis of the preceding analysis, write a brief memo explaining how an increase in inventory turnover can result in an increase in cash flow from operating activities. Also explain how this increase can benefit the company.

Inventory Cost of goods sold (dollars in thousands) Beginning of Year $62,035 End of Year (projected) $41,560 Current Year (projected) $687,780