a. What does it mean to say that a firm has an inventory turnover ratio of 4?
Question:
a. What does it mean to say that a firm has an inventory turnover ratio of 4?
b. Describe the operating cycle and cash cycle. What are the differences?
c. Explain the connection between a firm’s accounting-based profitability and its cash cycle.
Step by Step Answer:
a A firm with an inventory turnover ratio of 4 means that the firm is selling its inventory 4 tim...View the full answer
Essentials Of Corporate Finance
ISBN: 9781265414962
11th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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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