Answered: Explain the purpose of the inventory…

Explain the purpose of the inventory turnover ratio? Is it possible for a firm to have a high current ratio and still have difficulty paying its current bills? Why or why not?

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

8th Edition

ISBN:9781285065137

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter4: Analysis Of Financial Statements

Section: Chapter Questions

Problem 2DQ

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Explain the purpose of the inventory turnover ratio?
Is it possible for a firm to have a high current ratio and still have difficulty paying its current bills? Why or why not?

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Similar questions

Why is inventory management vital to the financial health of most firms?
What insights can be gained from inventory ratio analysis, such as inventory turnover ratio and number of days sales in inventory ratio?
Trade-Offs among Acceptable Accounting Alternatives. Firms value inventory under a variety of assumptions, including two common methods: last-in first-out (LIFO) and first-in first-out (FIFO). Ignore taxes, assume that prices increase over time, and assume that a firms inventory balance is stable or grows over time. Which inventory method provides a balance sheet that better reflects the underlying economics, and why? Which method provides an income statement that better reflects the underlying economics, and why?
When would using the FIFO inventory costing method produce higher inventory account balances than the LIFO method would? A. inflationary times B. deflationary times C. always D. never
In calculating inventory turnover, why is cost of goods sold used as the numerator? As the inventory turnover increases, what increasing risk does the business assume?
What does the inventory turnover period ratio measure? Select one: a.Profitability. b.The average time an organisation holds inventory. c.The liquidity of the firm. d.How much the firm's current assets could decrease and still leave it able to pay its current liabilities.
Explain how LIFO, FIFO, and Weighted average inventory systems will have different affects on a firm’s income statement and balance sheet. If a firm was concerned about reducing their tax burden, which inventory system would best benefit them? Assume costs have been steadily rising over time.