Question

An analyst is comparing two companies, a retail bookstore chain and an on-line bookstore. Which of the following activity ratios is most likely significantly higher for the on-line bookstore?

1. accounts receivable turnover
2. inventory turnover
3. accounts payable turnover
4. gross margin

Answer 1

The inventory turnover ratio is significantly higher for an online bookstore like Amazon due to economies of scale and the use of highly automated warehouse systems, which enable faster and more cost-efficient inventory processing.

Step-by-step explanation:

When comparing the activity ratios of a retail bookstore chain and an online bookstore like Amazon, it is important to consider the operational differences between the two business models. Based on the description of Amazon's operations, with its use of large, low-rent warehouses and highly automated systems, the inventory turnover ratio is most likely significantly higher for the online bookstore. Traditional retail bookstores with physical locations usually have higher rent costs and less efficient inventory management. On the other hand, companies like Amazon that utilize economies of scale, as well as advanced robotic and computerized systems, can process and move inventory more rapidly and at a lower cost, contributing to a higher inventory turnover ratio.