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      Question

      The ___________ may indicate that the firm is

      experiencing stock outs and lost sales.
      A Average payment period Correct Answer Incorrect Answer
      B Inventory turnover ratio Correct Answer Incorrect Answer
      C Quick ratio Correct Answer Incorrect Answer
      D Average collection period Correct Answer Incorrect Answer
      E Current ratio Correct Answer Incorrect Answer

      Solution

      Inventory turnover indicates how fast a company is selling inventory and is generally compared against industry averages. A low turnover implies weak sales and, therefore, excess inventory. A high ratio implies either strong sales and/or large discounts. The speed with which a company can sell inventory is a critical measure of business performance.

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