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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following statements best describes the acceptable inventory turnover ratio for a company?

It varies by industry, but generally a higher turnover ratio indicates efficient inventory management.

An acceptable turnover ratio is always exactly 1.

A lower turnover ratio is always preferable, regardless of industry.

The acceptable turnover ratio is fixed at 10 for all companies.

Previous problemNext problem

Verified step by step guidance

Understand the concept of inventory turnover ratio: It measures how efficiently a company manages its inventory by calculating how many times inventory is sold and replaced over a specific period. The formula is Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory.

Recognize that the acceptable inventory turnover ratio varies by industry. For example, industries with perishable goods (like food) typically have higher turnover ratios compared to industries with durable goods (like furniture).

Evaluate the statement 'A higher turnover ratio indicates efficient inventory management': Generally, this is true because it suggests that inventory is being sold and replenished quickly, reducing holding costs and the risk of obsolescence.

Analyze the statement 'An acceptable turnover ratio is always exactly 1': This is incorrect because a turnover ratio of 1 would mean inventory is sold and replaced only once during the period, which may not be efficient depending on the industry.

Review the statement 'The acceptable turnover ratio is fixed at 10 for all companies': This is incorrect because inventory turnover ratios are not universally fixed and depend on industry norms and business models.