Question

Why would the inventory turnover ratio be more important when analysing a grocery store than an insurance company?

Answer 1

Nature of business make inventory turnover ratio more important in case of a grocery store as compare to an insurance company. A grocery store is a trading concern involved in trading i.e., buying and selling of goods and in this regards it is obvious to maintain some inventory in stores. On the other hand, insurance company involved in service business and involved in delivering service there is no question of inventory because service is perishable in nature and cannot be stored. That's why inventory turnover ratio is more important in case of grocery store than an insurance company.