Evaluating the Effects of Manufacturing Changes on Inventory Turnover Ratio and Cash Flows from Operating Activities Carter
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1. Compute the Inventory Turnover Ratio based on two different assumptions:
a. Those presented in the preceding table (a decrease in the balance in inventory).
b. No change from the beginning-of-the-year inventory balance.
2. Compute the effect of the projected change in the balance in inventory on cash flow from operating activities for the year (the sign and amount of effect).
3. On the basis of the preceding analysis, write a brief memo explaining how an increase in inventory turnover can result in an increase in cash flow from operating activities. Also explain how this increase can benefit thecompany.
Inventory 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,...
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