decline in a firm's inventory turnover ratio suggests that it is managing its inventory more efficiently and also that its liquidity position is improving, i.e., it is becoming more liquid.

Question

Quizplus · Accepted Answer

A decline in inventory turnover ratio indicates that the firm is holding onto its inventory for a longer period of time, which could be due to overstocking or slow demand. This indicates inefficiency in inventory management and results in tying up cash in inventory, which could potentially harm the liquidity position of the firm. Therefore, a decline in inventory turnover ratio suggests that the firm's liquidity position is deteriorating, not improving.

Decline in a Firm's Inventory Turnover Ratio Suggests That It