New Coffee Company uses JIT (justintime) logistical supply methods. This indicates that the company doesn't really keep large stocks of coffee on hand, which is cheaper, from the standpoint of operations, but more risky because of the potential havoc any significant under or oversupply of product could wreak. Which of the following ratios is of the utmost importance to New Coffee Company?
A) Debttoassets ratio
B) Inventory turnover ratio
C) Average collection period ratio
D) Current ratio

Question

New Coffee Company uses JIT (just­in­time) logistical supply methods. This indicates that the company doesn't really keep large stocks of coffee on hand, which is cheaper, from the standpoint of operations, but more risky because of the potential havoc any significant under­ or over­supply of product could wreak. Which of the following ratios is of the utmost importance to New Coffee Company?
A) Debt­to­assets ratio
B) Inventory turnover ratio
C) Average collection period ratio
D) Current ratio

Quizplus · Accepted Answer

The inventory turnover ratio is the most important ratio for a company that uses JIT logistical supply methods because it measures how quickly the company sells and replaces its inventory. A high inventory turnover ratio indicates that the company is efficiently managing its inventory and reducing the risks associated with holding too much inventory on hand. Therefore, the inventory turnover ratio is the most important ratio for New Coffee Company.

New Coffee Company Uses JIT (Just­in­time) Logistical Supply Methods

New Coffee Company Uses JIT (Justintime) Logistical Supply Methods