Why Do Companies Try to Keep Inventory Low

question 83

Multiple Choice

Why do companies try to keep inventory low?

• A) It keeps production stable.
• B) It keeps the raw materials market balanced.
• C) The lower the inventory, the more flexibility the company is.
• D) It keeps the suppliers in competition with one another.
• E) Money that is not tied up with inventory can be used for other purposes (increased liquidity).

---

Definitions:

Solvency Measure

Financial metrics used to evaluate a company's ability to meet its long-term debts and financial obligations.

Long-term Basis

An approach or strategy focused on goals, investments, or plans that extend beyond the immediate or short-term period.

Accounts Receivable Turnover

A ratio that measures how effectively a company collects its receivables or the efficiency of its credit policies.

Working Capital

The difference between a company's current assets and current liabilities, indicating short-term financial health and operational efficiency.