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 statements correctly explains what the inventory turnover ratio assesses?

It measures how many times a company's inventory is sold and replaced over a period.

It shows the percentage of net income generated from total assets.

It indicates the proportion of inventory financed by long-term debt.

It assesses the average number of days it takes to collect receivables.

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Verified step by step guidance

Step 1: Understand the concept of the inventory turnover ratio. It is a financial metric used to evaluate how efficiently a company manages its inventory by measuring how many times inventory is sold and replaced during a specific period.

Step 2: Compare the given options to the definition of the inventory turnover ratio. The correct explanation should align with the idea of measuring the frequency of inventory sales and replacement.

Step 3: Eliminate options that do not relate to inventory management. For example, options discussing net income from total assets, inventory financed by long-term debt, or receivables collection are unrelated to the inventory turnover ratio.

Step 4: Identify the option that directly corresponds to the inventory turnover ratio's purpose, which is to measure how many times a company's inventory is sold and replaced over a period.

Step 5: Confirm the correct answer by ensuring it matches the definition and purpose of the inventory turnover ratio, which is focused on inventory sales and replacement frequency.