CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Generally, a high inventory turnover is a sign of ______.

A. efficient inventory management
B. an increase in prices
C. fewer sales than planned
Correct Answer: A

Generally, a high inventory turnover is a sign of efficient inventory management and profit. The faster the company sells its inventory, the lower the company's investment in inventory. However, in some cases, a high inventory turnover could mean understocking of inventory and lost orders, a decrease in the cost of inventory, or a shortage of available products.

User Contributed Comments 3

User Comment
teddajr Why not B - under LIFO?
If the prices increase COGS will increase.
Hence, inventory turnover will also increase.
achu High turnover is not necessarily concurrent with an increase in prices. Consider a monopolitic competetion scenario where a company goes for high volume and low margins. They might decrease prices to get/sustain high turnover. While you might find a scenerio where your thoughts work, I believe A is the best choice by a good margin.
khalifa92 the higher the turn over the faster inventory, receivables turn to cash and payables turn to be paid.
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