Slow Inventory Turnover

One way to see whether a company is slowing down is to look at its inventory turnover (how quickly the inventory the company holds is sold). As a product's life span nears its end, moving that product off the shelf tends to be harder and harder.

When you see a company's inventory turnover slowing down, it may indicate a long-term or short-term problem. Economic conditions, such as a recession — which isn't company-specific — may be the cause of a short-term problem. A long-term problem may be a product line that isn't kept up to date, causing customers to look to other companies or products to meet their needs. I show you how to pick up on inventory-turnover problems in Chapter 15 by using numbers from the income statement and balance sheet.

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