An increase in the inventory turnover ratio is normally considered to be favourable but could be unfavourable if it means:
A) inventory is less likely to become obsolete.
B) liquidity is greater.
C) the firm not carrying enough inventory to meet its customer's needs.
D) storage costs of inventory are lower.

Question

Quizplus · Accepted Answer

An increase in inventory turnover ratio means that inventory is being sold and restocked more frequently, which could be indicative of a higher demand for the products. However, if the firm is not carrying enough inventory to meet its customer's needs, this could result in lost sales and dissatisfied customers. Therefore, an increase in the inventory turnover ratio could be unfavourable if it means the firm is not carrying enough inventory to meet demand.

An Increase in the Inventory Turnover Ratio Is Normally Considered