Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Inventory Turnover

Financial Accounting

14. Financial Statement Analysis

Ratios: Inventory Turnover

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Multiple Choice

Which of the following may occur with a higher inventory turnover ratio?

The company is facing decreased sales efficiency.

The company is selling inventory more quickly, potentially reducing holding costs.

The company is accumulating excess inventory.

The company is experiencing increased inventory obsolescence.

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Verified step by step guidance

Understand the concept of inventory turnover ratio: It measures how efficiently a company sells and replaces its inventory during a specific period. A higher ratio indicates faster inventory movement.

Analyze the implications of a higher inventory turnover ratio: Faster inventory movement typically means the company is selling goods more quickly, which can reduce holding costs such as storage and insurance.

Evaluate the options provided: Decreased sales efficiency and increased inventory obsolescence are unlikely outcomes of a higher inventory turnover ratio, as these would typically occur with slower inventory movement.

Consider the option of accumulating excess inventory: This is also unlikely with a higher inventory turnover ratio, as excess inventory would suggest slower turnover.

Conclude that the correct implication of a higher inventory turnover ratio is that the company is selling inventory more quickly, potentially reducing holding costs.