The following data were taken from the income statements of Merlot Company. Compute for each year(a) The
Question:
The following data were taken from the income statements of Merlot Company.
Compute for each year(a) The inventory turnover ratio and(b) Days in inventory. What conclusions concerning the management of the inventory can be drawn from these data?
Inventory Turnover RatioInventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,...
2011 2012 Sales revenue Beginning inventory Purchases Ending inventory $6,420,000 $6,240,000 4,661,000 4,840,000 1,020,000 960,000
Step by Step Answer:
a b Days in inventory Management should be concerned with the fact ...View the full answer
Financial Accounting Tools for business decision making
ISBN: 978-0470534779
6th Edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
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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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