Question

"A high value of stock turnover shows the high efficiency of

inventory management. However, it doesn’t necessarily imply that a
business earns a high profit."
1. true
2. false

Answer 1

A high stock turnover rate reflects efficient inventory management but doesn't ensure high profits due to other affecting financial factors. Similarly, a financial investor cannot rely solely on past company profits to earn high capital gains due to variable market and economic conditions.

Step-by-step explanation:

It is true that a high value of stock turnover indicates high efficiency of inventory management. However, having a high stock turnover rate doesn't necessarily mean that a business will earn a high profit. This is because stock turnover only measures how quickly a company sells its inventory, not the margin it makes on sales or other critical financial factors.

For a financial investor in stocks, simply buying companies with a demonstrated record of high profits does not guarantee high capital gains. This is due to various other factors that can affect stock prices, such as market sentiment, industry trends, investor expectations, and overall economic conditions. Moreover, future profits are not guaranteed just because a company has been profitable in the past. Therefore, diversification and a well-thought-out investment strategy are critical for capital gains.