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Inventory turnover ratio measures the number of times an inventory item is sold or used in during a given time period. Generally, there is no norm for this ratio and it is appreciated to be compared against industry average. A high turnover ratio shows that company is turning its inventory into cash quickly, resulting a lower risk of having obsolete inventory and vice versa.
Consider a case of Beta Corporation which is one of the leading rubber manufacturers. The company, enjoying rapid growth in the industry, is experiencing an exceptionally high inventory turnover ratio. This may signal some negative indications.
You are required to briefly discuss at least four possible negative indications with proper rationale.
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how to solve it
their is a rapid growth in the industry then malik bhai kindly guide how we mention the point in which way about the negitive points
U can explain more as per ur satisfaction
I totally agree with your 2nd and 3rd point .will you please eleborate the first point ..Mujay kisi example sy samja du plzz
that rate of return zero kasay huta hai
its copmete gdb solution?
kindly tell me
Negative indication 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 the case of material shortages or in anticipation of rapidly rising prices. Since company is selling quickly, it's could also a sign that the product in the market is over delivered than required. The Account Receivables will also be increase which will cause the risk of bad debits
I added two points please view