Final answer:
A reduction in inventory holdings does not always result in greater firm profitability.A reduction in inventory does not always guarantee greater profitability as it can lead to missed sales if inventory levels become too low to meet demand.
Step-by-step explanation:
The statement "A reduction in inventory holdings will always result in greater firm profitability" is false. While it is true that reducing inventory can lead to lower costs for a firm, it doesn't necessarily guarantee greater profitability. Profitability depends on various factors such as pricing strategies, demand for the product, and competition in the market.
For example, if a company reduces its inventory by ordering smaller quantities of raw materials, it may save on storage and carrying costs. However, if the company experiences a sudden increase in demand and is unable to meet customer orders due to low inventory levels, it may lose sales and profitability.
Therefore, it is important for firms to strike a balance between inventory management and meeting customer demand to ensure sustainable profitability.