Question

CleteCorp has an inventory turnover in days of 62 in 2018 as compared to 60 in 2017 and an industry average of 55. What does this indicate about CleteCorp?

1) CleteCorp is doing a better job of selling their inventory as compared to the prior year, but not the industry average.
2) CleteCorp is doing a better job of selling their inventory than both the prior year and the industry average.
3) CleteCorp is doing a worse job of selling their inventory as compared to the prior year, but not the industry average.
4) CleteCorp is doing a worse job of selling their inventory than both the prior year and the industry average.

Answer 1

CleteCorp's inventory turnover in days has increased from 60 to 62 from 2017 to 2018, and it is higher than the industry average of 55. This indicates a worsening performance in inventory management compared to both the previous year and the industry standard.

Step-by-step explanation:

Inventory turnover in days is a measure of how quickly a company sells and replaces its inventory in a given period. For CleteCorp, an inventory turnover in days of 62 in 2018 compared to 60 in 2017 indicates that it took CleteCorp longer to sell its inventory in 2018 than in the previous year. Given that the industry average is 55 days, CleteCorp is also taking longer to sell its inventory compared to the industry standard. Therefore, it is fair to conclude that CleteCorp is doing a worse job of selling their inventory than both the previous year and the industry average.