An increase in the inventory turnover indicates
A) the company is selling its inventory more frequently.
B) the company's cost of goods sold has decreased.
C) the company's average inventory has increased.
D) the company's profitability has improved.

Question

Quizplus · Accepted Answer

An increase in inventory turnover indicates that a company is selling its inventory more frequently, which means it is moving goods through its system at a faster rate. This does not necessarily mean that profitability has improved (D), as profitability depends on both revenues and expenses, not just how quickly inventory is sold. It also does not directly imply that the cost of goods sold has decreased (B) or that the average inventory has increased (C).

An Increase in the Inventory Turnover Indicates