Analysts maintain that two of the most important ratios are inventory turnover and accounts receivable turnover.
You are analyzing ABC Company, a computer manufacturer. You notice that inventory turnover this year is significantly lower than prior years. You also notice that accounts receivable turnover is significantly lower this year when compared to previous years. Provide three explanations that would be consistent with your observation for inventory turnover and include an explanation of whether these would be of concern to you, as well as what the effect might be on the next period’s financial results. In addition, provide three explanations that would be consistent with your observation of the accounts receivable turnover, and also explain whether these would be of concern to you.