Final answer:
The composition of the inventory is reported to illustrate its liquidity by showing the mix of inventory types, while the historical turnover ratio provides insights into how often inventory is sold and replaced.
Step-by-step explanation:
To better illustrate the liquidity of the inventory on financial statements or notes, the composition of the inventory is often reported. This information provides insight into the mix of finished goods, work-in-progress, and raw materials within the inventory, which can affect how quickly the inventory can be converted into cash. Additionally, the historical turnover ratio, which measures how often inventory is sold and replaced over a period, can be useful for assessing liquidity. The historical turnover ratio is particularly pertinent because a higher ratio suggests greater liquidity, implying inventory sells faster, frequently leading to improved cash flows.
However, the origin of the inventory and the industry turnover ratio are generally not as directly related to illustrating the individual company's inventory liquidity, as they may not reflect the company's specific circumstances. The origin is more related to supply chain considerations, and the industry turnover ratio provides a benchmark rather than the company's actual performance. Therefore, while useful for broader context, they do not provide the immediate insight into liquidity that composition and turnover data do.