Asset Management Ratios for Business Analysis
How often did Crawford Construction sell and replace its inventory over the past year?
A. 4.14x
B. 4.55x
C. 2.86x
D. 8.01x
Based on the industry average of 4.55x for the inventory turnover ratio, which statement is true for Crawford Construction?
A. Crawford Construction is holding less inventory per dollar of sales compared to the industry average
B. Crawford Construction is holding more inventory per dollar of sales compared to the industry average
Answer:
1. 4.14x
2. Crawford Construction is holding more inventory per dollar of sales compared to the industry average
Asset management ratios play a crucial role in evaluating a company's performance in managing its assets effectively. One key ratio used is the inventory turnover ratio, which indicates how often a company sells and replaces its inventory over a specific period, typically a year.
In the case of Crawford Construction, the inventory turnover ratio for the past year was calculated to be 4.14 times. This means that Crawford Construction sold and replaced its inventory approximately 4.14 times within the year.
Comparing this ratio to the industry average of 4.55 times, we can conclude that Crawford Construction is holding more inventory per dollar of sales compared to the industry average. This suggests that there may be room for improvement in managing inventory levels to align more closely with industry standards and improve overall efficiency.