Torrence Inc. has recently calculated the inventory turnover for the current year to be 30. In prior years, the same ratio was always lower. Which of the following statements would be the best interpretation for the reason for the ratio's change?
A) The company had less sales in the current year than in prior years.
B) The company purchased less inventory in the current year than in prior years.
C) The company took fewer days to sell its inventory in the current year than in prior years.
D) The company took more days to sell its inventory in the current year than in prior years.

Question

Quizplus · Accepted Answer

Inventory turnover ratio measures how quickly a company sells its inventory. A higher ratio indicates that the company is selling inventory at a faster rate. Therefore, option A cannot be correct as a higher ratio suggests more sales. Option B is also incorrect as a lower purchase of inventory would lead to a lower inventory turnover ratio. Thus, only options C or D are the possible answers. As the inventory turnover ratio has increased, it suggests that the company took fewer days to sell its inventory in the current year than in prior years. Therefore, the correct answer is option C.