Use the following information relating to Singh Company to calculate the inventory turnover ratio and the number
Question:
Use the following information relating to Singh Company to calculate the inventory turnover ratio and the number of days’ sales in inventory ratio.
Year 2021 Year 2022 Year 2023 Year 2024 Sales $12,500 14,000 19,500 20,500 Cost of Goods Sold $ 8,750 9,800 13,650 14,350 Average Inventory $1,750 2,200 2,800 3,000
Step by Step Answer:
Inventory turnover ratio is a measure of how quickly a company is selling its inventory It is calcul...View the full answer
Principles Of Accounting Volume 1 Financial Accounting
ISBN: 9781593995942
1st Edition
Authors: Mitchell Franklin, Patty Graybeal, Dixon Cooper, OpenStax
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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