Question

The inventory turnover and current ratio are related. The combination of a high current ratio and a low inventory turnover ratio, relative to industry norms, suggests that the firm has an above-average inventory level and/or that part of the inventory is obsolete or damaged.1. True
2. False

Answer 1

The inventory turnover and current ratio are related. The combination of a high current ratio and a low inventory turnover ratio, relative to industry norms, suggests that the firm has an above-average inventory level and/or that part of the inventory is obsolete or damaged.

Answer:

1. True

Step-by-step explanation:

A high current ratio is consistent with a lot of inventory. A low inventory turnover is also  

consistent with a lot of inventory. If the CR exceeds industry norms and the turnover is below  

the norms, then the firm has more inventory than most other firms, given its sales. It could  

just be carrying a lot of good inventory, but it might also have a normal amount of "good"  

inventory plus some "bad" inventory that has not been written off. So the statement is true