What does a higher inventory turnover ratio indicate?
Understand the Problem
The question is asking about the implications of a higher inventory turnover ratio, which is a financial metric that indicates how effectively a company is managing its inventory. We need to analyze the options provided to determine what a higher ratio signifies.
Answer
A higher inventory turnover ratio indicates strong sales and efficient inventory management.
A higher inventory turnover ratio indicates that products are selling at a good rate and the company is efficiently managing its inventory. However, an excessively high ratio might suggest a risk of stockouts due to insufficient inventory levels.
Answer for screen readers
A higher inventory turnover ratio indicates that products are selling at a good rate and the company is efficiently managing its inventory. However, an excessively high ratio might suggest a risk of stockouts due to insufficient inventory levels.
More Information
A high inventory turnover ratio demonstrates effective inventory management, reducing costs related to storage and handling. Companies aim for a balance to avoid stockouts while maintaining efficiency.
Tips
A common mistake is assuming a higher inventory turnover is always better, overlooking the potential issues like stockouts or excessive inventory shortages.
Sources
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