Question

The sales of SportCheck have increased recently and inventory has declined slightly. A financial analyst would expect to find that the:

Multiple Choice

• Inventory turnover has decreased and the days' sales in inventory has decreased.

• Inventory turnover has increased and the days' sales in inventory has increased.

• Inventory turnover has increased and the days' sales in inventory has decreased.

• Inventory turnover has decreased and the days' sales in inventory has increased.

• Quick ratio has decreased and the current ratio has increased.

Answer 1

Inventory turnover is computed as shown below:

= cost of goods sold or Sales / Inventory

As can be seen, if the sales or numerator has increased and inventory or denominator decreased, it will result in increase in inventory turnover.

Days sales in inventory is computed as follows:

= 365 / Inventory turnover

If the inventory turnover will increase, it will lead to reduction in days sales in inventory.

So, the correct answer is option of Inventory turnover has increased and the days' sales in inventory has decreased