An Analyst Using the Inventory Turnover Ratio to Calculate Future

question 31

Multiple Choice

An analyst using the inventory turnover ratio to calculate future levels of inventory may face the problem that:

• A) the method reduces the potential understatement inherent in average balances.
• B) the method can introduce artificial volatility in ending balances.
• C) the method results in understating inventory each year.
• D) the method results in overstating inventory each year.

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Definitions:

Measure Map

A concept used in Six Sigma or process improvement strategies to provide a visual representation and analysis of a process's steps and performance indicators.

Leading Indicators

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Lagging Indicators

Metrics that reflect the economy’s historical performance and changes, becoming apparent after an economic activity.

Balanced Scorecard

A strategic planning and management system used to align business activities to the vision and strategy of an organization, enhancing its internal and external communications and monitoring its performance against strategic goals.