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Question
If the inventory turnover is high, the working capital requirements will be ___________.
If the inventory turnover is high, the working capital requirements will be ___________.
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Solution
The correct option is B Low
Inventory Turnover = [Cost of goods sold/Sales] / Average inventory.A high inventory turnover is good from the point of liquidity position and vice versa. If the inventory turnover is high it means that the inventory is being used or sold in a short time, which means that the funds of the company are not being blocked and so the working capital requirements would be low.
Inventory Turnover = [Cost of goods sold/Sales] / Average inventory.
A high inventory turnover is good from the point of liquidity position and vice versa. If the inventory turnover is high it means that the inventory is being used or sold in a short time, which means that the funds of the company are not being blocked and so the working capital requirements would be low.
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