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How does the Inventory Turnover rate of a company provide information about its short term liquidity?

How does the Inventory Turnover rate of a company provide information about its short term liquidity?
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Answer : Inventory Turnover rate

  • Liquidity ratios provide information about the liquidity of company. It shows how the company meet it's short term financial obligation.
  • Liquidity ratios help financial managers to manage company's assets more efficiently.
  • Inventory turnover shows quickly company is selling its inventory.
  • If company's Inventory turnover is high it means company is generating more cash and debtors and company's fund allocation is optimal.
  • High Inventory turnover shows comapny's sales is high and low amount of inventory of sales.
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