Compare the company\'s average inventory turnover to the industry average invent

Question

Compare the company's average inventory turnover to the industry average inventory turnover rate.

Note that the average industry turnover rate for Ace Company is 10 times per year.

Consider whether the company’s average inventory turnover is higher or lower than the industry average.

Explain whether a higher or lower average is better.

Determine whether the trend is improving or getting worse.

Data set for these questions.

Inventory turnover

2017 - 10,000/((6,000 + 5,000)/2) = 1.82 times

2016 - $9,500/(($5,000 + $4,800)/2) = 1.94 times

Explanation / Answer

It shows that the company's inventory turnover is lower than the industry average.

Higher average is better, so in this case the company is doing worse as compared to industry average which means the company is not able to sell its inventory on time as compared to the industry. So lower inventory turnover means the company is taking higher number of days to convert the inventory into the final sales which might result in decline in value or write down value of the inventory.

this trend is getting worse as ratio is declining.

the above is answer..

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