CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Which of the following would MOST LIKELY signal that a company's inventory is getting obsolete?
A. Low inventory turnover ratio
B. High inventory level
C. LIFO inventory method
Explanation: The inventory turnover ratio measures the number of times, on average, the inventory is sold and replaced during the fiscal year. A low inventory turnover ratio is a signal of inefficiency, since inventory usually has a rate of return of zero. It also implies either poor sales or excess inventory. A low turnover rate can indicate poor liquidity, possible overstocking, and obsolescence, but it may also reflect a planned inventory buildup in case of material shortages or in anticipation of rapidly rising prices.

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