Selected data from the financial statements are provided below:

-Refer to Rainsoft Company. Assume that competitors in the industry have an average inventory turnover ratio of 20.8 times in 2021. Rainsoft's inventory turnover ratio for 2021 indicates that the company
A)has too little inventory on hand at the end of 2021.
B)is pricing its products too low.
C)is selling its inventory much more quickly than the industry average.
D)may have obsolete inventory or problems with sales.

Question

Selected data from the financial statements are provided below:
 
-Refer to Rainsoft Company. Assume that competitors in the industry have an average inventory turnover ratio of 20.8 times in 2021. Rainsoft's inventory turnover ratio for 2021 indicates that the company
A)has too little inventory on hand at the end of 2021. 
B)is pricing its products too low. 
C)is selling its inventory much more quickly than the industry average. 
D)may have obsolete inventory or problems with sales.

Quizplus · Accepted Answer

Rainsoft's inventory turnover ratio being lower than the industry average suggests that it may have obsolete inventory or problems with sales, as it indicates slower movement of inventory compared to competitors.

Selected Data from the Financial Statements Are Provided Below