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    Question

    A decreasing inventory turnover ratio typically

    indicates that a firm is:
    A Selling more inventory Correct Answer Incorrect Answer
    B Managing its inventory efficiently Correct Answer Incorrect Answer
    C Inefficient in managing its inventory Correct Answer Incorrect Answer
    D Both (A) and (B) Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    • Inventory turnover ratio = Cost of Goods Sold ÷ Average Inventory. • It reflects how many times a firm sells and replaces its inventory during a period. A declining inventory turnover ratio implies: • Inventory is not being sold quickly enough. • There is slower movement of stock, possibly due to weak sales, overstocking, or poor demand forecasting. • This often leads to higher holding costs and the risk of inventory obsolescence.

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