Under what circumstances might inventory turnover be too high? That is, what possible negative consequences might occur?
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Inventory turnover It is a measure that the number of times inventory is used or ...View the full answer
Accounting Principles
ISBN: 9781118566671
11th Edition
Authors: Jerry Weygandt, Paul Kimmel, Donald 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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