Series 79 practice questionhardFinancial Statement Analysis
If inventory turnover rises from 6x to 7x while demand is stable, what is the best interpretation?
- AInventory is moving faster, which generally means less cash is tied up in stock✓ Correct answer
- BReceivables are aging more quickly
- CThe company is using more debt financing
- DGross margin must be falling
Explanation
Why A — Inventory is moving faster, which generally means less cash is tied up in stock
Inventory is moving faster, which generally means less cash is tied up in stock Inventory turnover measures how efficiently a company sells through inventory over a period. A higher turnover rate usually improves working capital efficiency unless it reflects understocking and lost sales.
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