Short-term creditors are likely to view a higher-than-average inventory turnover rate as indicating that:
A)A company is in financial difficulty.
B)The company is able to sell its inventory quickly.
C)The company probably has an excessive amount of inventory.
D)The company has a longer-than-average operating cycle.

Question

Quizplus · Accepted Answer

A higher-than-average inventory turnover rate indicates that the company is able to sell its inventory quickly, which is a positive sign for short-term creditors as it suggests the company has strong liquidity and is able to generate cash flow to pay off its debts. It does not necessarily indicate financial difficulty, excessive inventory, or a longer operating cycle.

Short-Term Creditors Are Likely to View a Higher-Than-Average Inventory Turnover