Which ratio assesses how efficiently a company is managing its inventory?

Which ratio assesses how efficiently a company is managing its inventory?

• A. Days Sales Outstanding
• B. Days Inventory Held
• C. Cash Conversion Cycle
• D. Net Working Capital Ratio

Answer: (B)

The ratio that assesses how efficiently a company is managing its inventory is Days Inventory Held. This metric provides insight into how long inventory is held before it is sold, indicating the effectiveness of inventory management practices. A lower number of days suggests that a company is rapidly selling its inventory, effectively minimizing holding costs and reducing the risk of obsolescence. Conversely, a higher number of days may signal issues such as overstocking, slow sales, or inefficiencies in inventory turnover. Days Sales Outstanding measures how quickly a company collects cash from its receivables, while the Cash Conversion Cycle combines inventory turnover, accounts receivable, and accounts payable management into a single measure of how efficiently a company converts its investments into cash flow. The Net Working Capital Ratio focuses on a company's short-term financial health and its ability to cover its short-term liabilities, without directly addressing inventory management.

The ratio that assesses how efficiently a company is managing its inventory is Days Inventory Held. This metric provides insight into how long inventory is held before it is sold, indicating the effectiveness of inventory management practices. A lower number of days suggests that a company is rapidly selling its inventory, effectively minimizing holding costs and reducing the risk of obsolescence. Conversely, a higher number of days may signal issues such as overstocking, slow sales, or inefficiencies in inventory turnover.

Days Sales Outstanding measures how quickly a company collects cash from its receivables, while the Cash Conversion Cycle combines inventory turnover, accounts receivable, and accounts payable management into a single measure of how efficiently a company converts its investments into cash flow. The Net Working Capital Ratio focuses on a company's short-term financial health and its ability to cover its short-term liabilities, without directly addressing inventory management.