Problem 2: 13 points

1. Briefly explain the concept and how to calculate inventory turnover and how management uses it to measure their performance in managing inventory and Explain how the when measuring inventory across different companies what area of caution need to be considered when making this comparison. Again this is a two part answer to this question.

2. Secondly, explain why inventory as an item of working capital is only an estimate of the real cash flow that will be derived from inventory in the normal operating cycle.

3. Third, define the operating cycle from a cash management perspective, ie how do we measure cash to cash from inventory. (Hint days in inventory is only one piece of this cycle)