Question

A small pizza restaurant, founded and owned by the Martinelli sisters, would be expected to have which of the following? a.Low inventory turnover and high gross margin b.Low accounts receivable turnover and low gross margin c.High price-earnings ratio d.High inventory turnover and low gross margin e.All of these.

Answer 1

Answer:

d.High inventory turnover and low gross margin

Explanation:

Inventory Turnover Ratio is ratio of 'cost of goods sold' to 'average inventory level'. Gross margin is the difference between net sales revenue & c.o.g.s

A small pizza restaurant, by Martinelli sisters, would be expected to have :

• High Inventory Turnover : It reflects that inventory is quickly converted into liquid cash, & there is less average inventory level management. Both these aspects are applicable to the pizza restaurant
• Low Gross Margin : Being a small restaurant, it is less likely to have competitive, high price charge advantage. So, the gross margins are expected to be low.