1. Early in the year, Mary Boyle, the chief financial analyst at Caldwell Manufacturing, a producer of heat exchangers, gathered data on the firms financial performance during the previous year. She calculated a variety of ratios and obtained industry averages. She was especially interested in inventory turnover. (25 Points)

1a. What does inventory turnover reflect?

1b. Generally, analysts like to see higher values of this ratio. Why?

1c. Caldwell Manufacturings inventory turnover for the year just ended and the industry average inventory turnover were as follows: How much faster did Caldwell turnover inventory than the industry?

1d. After reflection, however, she realized that a very high inventory turnover could be a sign that the firm is not holding enough inventories. What could be the consequence of not holding enough inventories?

1e. What can you conclude about the initial appearance of the ratio versus the reality?

\begin{tabular}{lc} & inventory Turnover \\ \hline Caldwell Manufacturing & 14.8 \\ Industry average & 9.7 \\ \hline \end{tabular}