Business – 10.2 Analysis of published accounts – Financial efficiency ratios | e-Consult
10.2 Analysis of published accounts – Financial efficiency ratios (1 questions)
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Answer:
- Cash Flow: A higher turnover means inventory is converted to sales more quickly, reducing the cash tied up in stock and improving operating cash flow.
- Holding Costs: Faster turnover lowers storage, insurance, and obsolescence costs, which directly enhances profitability.
- Pricing Power: If turnover increases because of aggressive discounting, profit margins may shrink despite higher sales volume; conversely, efficient turnover without price cuts can boost margins.
- Supplier Relations: Improved turnover can strengthen negotiating power with suppliers, potentially leading to better credit terms and lower purchase costs.