A comparison of 20X1 to 20X0 performance shows that Neir Companys inventory turnover increased substantially although sales
Question:
A comparison of 20X1 to 20X0 performance shows that Neir Company’s inventory turnover increased substantially although sales and inventory amounts were essentially unchanged.
Required:
Which of the following statements best explains the increased inventory turnover ratio?
1. Cost of goods sold decreased.
2. Accounts receivable turnover increased.
3. Total asset turnover increased.
4. Gross profit percentage decreased.
Step by Step Answer:
Inventory turnover is Cost of goods sold divided by Average ...View the full answer
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
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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