Why would a slow inventory turnover rate be a red flag in a financial statement analysis?
A)The company may have obsolete inventory.
B)The company may have bad salespeople.
C)The company may be overstating inventory.
D)Both A and C are reasons why it would be a red flag.

Question

Quizplus · Accepted Answer

A slow inventory turnover rate could indicate that the company is holding onto obsolete inventory that is not selling, or that the company is overstating the value of its inventory on the balance sheet. Both situations would negatively impact the company's financial health and could be a red flag for investors and analysts. The option B, about bad salespeople, is not a likely reason for a slow inventory turnover rate.

Why Would a Slow Inventory Turnover Rate Be a Red